With geopolitical instability, increasing rates, and high inflation, firms and investors have had a difficult macro environment to manage. According to Nasdaq Chair and Chief Executive Officer Adena Friedman, the new year presents chances to create the new economy.
“The year ahead brings tremendous opportunity for an economic and societal reset; one that seeks to rebuild trust across our institutions, one that prioritizes sustainable growth over growth-at-all-costs, where responsible innovation thrives, and where investor and consumer confidence is not only protected but prioritized,” Friedman wrote in her annual outlook, “2023: The Building Blocks of The New Economy.”
While the risk of a recession remains uncertain, Friedman thinks we will have a clearer picture of what interest rates will look like in three or four months.
“What people really want is a known environment,” Friedman told CNBC at the World Economic Forum Annual Meeting in Davos, Switzerland. “They want to understand their cost of capital.”
She claims that firms want to better understand the economic climate in order to underwrite investments, while investors want to better understand the environment in order to make educated investment choices.
“If we can get to a point where we have a known interest rate environment, even if inflation is still a little elevated, I think we can operate in that environment for a long time,” Friedman told CNBC. “Hopefully, we can avoid a recession, but even if we do, we’ll be familiar with the environment, which creates a better environment for investors.”
Notably, Friedman admitted that, although the United States has had very low interest rates for the last 14 years, we have had anything from 3% to 5% interest rates for decades previously and yet had a robust, expanding economy.
One seismic shift she anticipates for the near future is the realization that “money is no longer free,” adding that this shift would likely reduce our accustomed “growth-at-all-costs” attitude.
“Capital has a real cost. “Access to capital will have some sort of effect that will cause companies to make more discerning investment decisions,” Friedman stated during her CNBC interview.
She anticipates that corporations will become more focused on cash flow, and that investors will become more interested in companies that can demonstrate profitable growth or a clear route to profitability.
Friedman told CNBC that “instead of letting every sprout grow, you’re going to choose which sprouts are going to grow into trees, and you’re going to go really hard after those.”
In terms of other developments, Friedman said in her 2023 prediction that she expects the economy’s digital transition to continue. She predicts that businesses will continue to prioritize strategic data and infrastructure utilization in order to function more effectively and “do more with less.”
She also said that automation, artificial intelligence (AI), and the growth and regulation of the digital asset industry would be important issues in this new economy.
While most CEOs are concerned about supply chain issues, workforce shortages, and digital-native customers, Friedman feels that automation is critical to survival. Companies will continue to upgrade technology in order to boost internal efficiency and client results.