Federal Reserve

Stable interest rates improve CEO confidence more than partial trade deal, says chief of business group

Key Points
  • Stable interest rates from the Federal Reserve improve business leader confidence more than the "phase one" trade deal, Conference Board CEO Steve Odland says.
  • "It should get a little bit better, but the bigger effect, I think, has been what the Fed has done," Odland tells CNBC.
  • The Fed said last week that it will likely keep interest rates unchanged in 2020 amid persistently low inflation.
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Fed improves CEO confidence more than partial trade deal, says CEO of leading business intel group

Stable interest rates from the Federal Reserve do more to improve business leader confidence than the partial trade deal announced last week, Conference Board CEO Steve Odland told CNBC on Tuesday.

"It should get a little bit better, but the bigger effect, I think, has been what the Fed has done," Odland said on "The Exchange." "They've said we're here in a stable period for a long period of time."

The Fed announced last week that it was keeping its funds rate in a target range of 1.5% to 1.75% while also indicating that it was unlikely to change rates in 2020 amid persistently low inflation.

That decision Wednesday was followed two days later by news of a "phase one" trade deal between the U.S. and China.

As part of the accord, China agreed to increase agricultural purchases from the U.S., while President Donald Trump said he would not implement a new batch of tariffs that had been set for Sunday. U.S. Trade Representative Robert Lighthizer said the plan is to sign the agreement in January.

Odland emphasized that he believed the deal is a strong starting point for future negotiations, especially because of the cancellation of the Sunday tariffs, which would've affected consumer goods including toys, phones and clothing.

He also said the timing of the deal's announcement — before U.S. farmers plant their crops in the spring — is another benefit.

"Yes, this is good. We need phase two, which is the bigger thing and so forth. It's good it hasn't thrown a monkey wrench into it," Odland, former CEO of Office Depot, said. "But interest rates are the bigger deal."

The interest rate decision is important because chief executive officers need to have certainty around capital allocation, said Odland, whose nonprofit organization tracks CEO and consumer confidence through surveys.

In October, the poll of CEOs found their confidence to be at its lowest level in a decade amid the uncertainty around the trade war and slowing global growth expectations. The survey found more CEOs had paused investment in 2019 than in 2018 in response to the declining confidence.

"In a tight labor market, this is really important because if you're going to invest in future jobs, if you're going to invest in capital, if you're going to invest in marketing spending, consumer spending, all of that is dependent on your cost of capital and the certainty," Odland said.

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