CEOs Unfazed by Looming Fed Hike

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June 8, 2004 -- While the bond markets fret over an expected increase in interest rates, many chief executives anticipate the move to have little or no effect on their businesses, according to a survey by CEO consulting company TEC International.

Nearly half of the 1,100 CEOs of small and mid-sized businesses polled during the second quarter said a full point increase of short-term interest rates over the next two quarters would have no effect on business. The survey showed that 41.1 percent felt such a raise would have only a mildly negative effect.

The survey, used to configure the TEC Confidence Index, painted a picture of an economy continuing to gain steam, with employment increasing along with revenues, profitability, capital spending and prices.

More than 80 percent of respondents anticipate increased sales revenues and 71 percent expect profitability to improve. Almost 60 percent said they plan on hiring more employees over the next 12 months.

Many companies plan to pass along rising costs to their customers, as 54 percent of the firms said they expect to increase prices during the next 12 months. Of those looking to raise prices, half anticipate doing so by the end of 2004.

"Firms have already begun to take actions based on the favorable economic expectations," said Richard Curtin, director of consumer surveys at the University of Michigan and consultant on the TEC survey. He found that companies "expect to be able to raise their prices to cover increased costs of labor, material and energy, while still maintaining their current profit margins."

Matt Quinn contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.