On Wednesday, the Bureau of Labor Statistics released data showing the Consumer Price Index rose 8.5% over the previous year in July. The figure showed that inflation cooled from 9.1% last month, somewhat easing fears of a recession.
On a recent episode of “Influencers with Andy Serwer,” before the latest inflation numbers were released, ServiceNow (NOW) CEO Bill McDermott predicted that, if a recession comes, it won’t pose a long-term threat to the US economy .
“I’m actually really optimistic right now that you can have something technical, short-term, and I think the economies are going to be really good,” McDermott told Yahoo Finance.
While inflation eased slightly this month, prices began to rise last year amid supply chain constraints and a strong job market. In efforts to mitigate the rise in prices, the Federal Reserve continues to raise interest rates.
The country has also recently experienced two consecutive quarters of GDP decline and is currently seeing an inversion of the US bond market’s yield curve. Both trends traditionally signal a recession and along with high inflation, have only intensified fears that the US is on the brink of one.
However, the US labor market remains strong. Just last week, the Labor Department’s monthly jobs report showed 528,0000 new jobs, bringing the unemployment rate down to 3.5%. That’s about the same rate as before the start of the COVID-19 pandemic in January 2020 and far from the pandemic high of 14.8%.
“I believe that as monetary policy becomes more predictable, and maybe even loosens up, let’s just say, a year from now,” McDermott said, “if you see the inflation numbers come down, and you see it stabilize monetary policy, you will see the markets run.”
McDermott leads ServiceNow, a cloud computing company based in Santa Clara, California with more than 17,000 employees. Recent earnings reports have shown that cloud computing businesses have grown despite facing a strong economy. For example, in Microsoft’s last earnings report, cloud revenue was $25 billion, up 28% year over year.
For his part, McDermott said he sees a strong outlook for digital companies.
“The business for digital companies like ours is incredible. I’m seeing the tailwind again coming into the market, where people are now saying, ‘Okay, I’ve done the great reprioritization. I know which platforms matter. I know exactly what those platforms are doing in doubling the digital transformation’,” McDermott said. “So, I see that tailwind, actually, reigning even stronger than it was before these macro crosswinds became popular to talk about in the last 90 days. So, I think growth is back, especially for digital companies.
However, some aspects of the economy remain difficult to predict. For example, some experts fear that the war in Ukraine may continue to raise food and energy prices.
However, for now, oil prices have seen a clear decline since they peaked earlier this year. For example, average gas prices in the US recently dropped to $3.99 per gallon after climbing to around $5.02 in June. Ultimately, McDermott doesn’t think the war will do lasting damage to the US economy.
“Of course, this is an unbelievable humanitarian crisis. And we were all heartbroken to see it happen. This should not happen in the 21st century [and] it’s really hard to stomach,” said McDermott. “But that aside, this will not be the determining factor in the economy. I think inflation is the big thing. So when inflation stabilizes or starts to come down, I think that will be a very, very good sign.
Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple o Android
Follow Yahoo Finance at Twitter, Facebook, Instagram, Flipboard, LinkedInand YouTube