The Federal Reserve interest rate, which influences global lending rates, is now at its highest point in 23 years. Despite this, JPMorgan’s commercial banking clients remain optimistic.
A survey of over 100 founders and senior business leaders from firms with revenues up to $2 billion found that more than 90% are neutral to optimistic about the U.S. economy in the coming year.
According to Ginger Chambless, head of JPMorgan’s commercial banking research, these survey results reflect broader trends in the bank’s commercial sector. Respondents cited three main factors for their optimism: anticipated market expansion, new product launches, and planned AI adoption.
“What they’re seeing in their own businesses is fueling their optimism for their growth trajectory—and their revenues and profits,” Chambless said.
JPMorgan’s commercial banking generated $15.5 billion in revenue last year, a 35% year-over-year increase, and posted $3.9 billion in the first quarter of 2024, a 12.5% rise from the same quarter in 2023. (JPMorgan’s second-quarter earnings call is scheduled for Friday.)
Despite various business concerns, 28% of respondents expect market expansions over the next year, 26% plan to launch new products, and 25% intend to adopt or expand AI usage.
Chambless noted that consumers, businesses, and markets are coping better than expected with recent inflation rates as high as 9.1%. Midsized businesses are more willing to innovate, anticipating a soft landing from record-high inflation, which fell to 3.1% in January and rose to 3.3%.
Although high rates typically reduce mergers and acquisitions, 34% of leaders surveyed expect to engage in M&A over the next 12 months. With interest rates possibly reducing this year, founders may be looking to finalize deals delayed by high rates, according to Chambless.
Reasons for optimism
The positive outlook is notable for several reasons. In a similar JPMorgan poll from January, only 67% of business leaders were neutral or optimistic about 2024. Despite significant concerns—33% worry about the impact of interest rates on debt costs, 25% about geopolitical conflicts, and 25% about upcoming elections—the overall outlook remains positive. The Federal Funds Effective Rate is currently at 5.33%, the highest since February 2001’s 5.49%.
Eighteen percent of respondents plan to add employees over the next year, indicating optimism for growth. The Bureau of Labor Statistics reported a non-farm payroll increase of 206,000 last month, with unemployment at 4.1%.
Despite the optimism, Chambless advises businesses to de-risk their exposures, whether related to interest rates or commodity prices, to focus on their core operations.
The survey, conducted last month at JPMorgan’s ninth annual Founders Forum in New York City, included 115 participants from industries such as technology, retail, food and beverage, and healthcare, with firms generating annual revenues from $20 million to $2 billion.
