March inflation data is compounding US economic pressures, further muddying the Federal Reserve's outlook on interest rate cuts and when exactly officials should implement them. KPMG US Chair and CEO Paul Knopp sits down with Yahoo Finance in-studio to discuss inflation's pervasiveness and the results of KPMG's latest CEO survey, gauging chief executives' optimism on the US economy.

"87% of CEOs were optimistic about the prospects for the US economy. 78 or 79% for the US economy and equally for the global economy. 72% of CEOs said that they were going to increase either significantly or modestly their hiring in the next 12 months with only 4% talking about reductions, which aligns well," Knopp explains. "All the while facing into a lot of geopolitical uncertainty. Cyber is obviously prominent in people's minds right now. And then, the tight labor market remains a concern, but also, it's something that we've been navigating for quite some time now."

Knopp also talks about survey results pertaining to corporations' geopolitical concerns, outlook on business operations, and generative AI adoption.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance.

This post was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: Stocks reversing course, with all three of the major averages lowered this morning as investors digest the latest inflation readings. Now, out this morning, PPI data showing that wholesale prices came in a bit better than what the Street had been forecasting. And that was a bit of a relief here for investors following yesterday's hotter than expected CPI print. At least initially, it was a bit of a relief.

Well, yesterday CPI print, it was enough for investors to push out their expectations of rate cuts, many not expecting that first rate cut now until September. So if we are starting to see we'll be in this higher for longer rate environment right now, what's the impact going to be on the economy and the odds of a soft landing? To discuss that and more, we want to bring in KPMG US Chair and CEO Paul Knopp.

Paul, it's great to have you here at the desk with us. Let's talk about the latest readings. And we also want to get to a recent survey out from KPMG. But when you take a look at the inflationary pressures right now, the fact that the inflationary pressures have remained much more elevated than the last time you and I spoke, just in terms of what we had anticipated that we would see up until this point, how are you navigating this uncertain time?

PAUL KNOPP: Well, it's certainly an uncertain times. So there's a lot at play here. The forces behind higher inflation, food, energy, security cost, services cost. No doubt to some degree labor, but maybe to a lesser degree. And then you have all these geopolitical events that are not helping with inflation.

To some degree too, more fragmentation in globalization is creating upward pressure on prices. It doesn't help too to have the kind of conflict we have in the Suez Canal area, what happened in the Port of Baltimore, that tragedy is certainly going to put pressure on prices too. So there's a lot at play. It's really a very complicated time that we're facing into.

MADISON MILLS: Not an easy time to be a CEO. But I know in your latest survey of 100 CEOs of some of the larger companies, it seems like maybe there's a little bit of optimism out there. Can you talk to us about that?

PAUL KNOPP: Oh, there's a fair amount of optimism. So 87% of CEOs are optimistic about the prospects for the US economy, 78% or 79% for the US economy, and equally for the global economy. 72% of CEOs said that they were going to increase either significantly or modestly their hiring in the next 12 months, with only 4% talking about reductions, which aligns well, all the while facing into a lot of geopolitical uncertainty. Cyber is obviously prominent in people's minds right now. And then the tight labor market remains a concern, but also it's something that we've been navigating for quite some time now.

SEANA SMITH: And compare that to some of the risks that were highlighted from CEOs just in terms of some of that uncertainty, going back to what we were just talking about a moment ago. What is on their radar? And what do they see as the potential impact of that as some of those risks do come to fruition?

PAUL KNOPP: Sure. So no doubt geopolitical. That's been at the top of the list for quite some time with everything that's happening in the world, particularly in the Middle East, Ukraine, fears about a contagion effect throughout Asia and potentially parts of Europe. Regulatory concerns remain top of mind in terms of making sure there's an appropriate balance to regulation so the US economy can grow in the long term sustainably.

There is no doubt there are operational concerns around those geopolitical events that seep into supply chains. And we're seeing a lot of organizations with their near-shoring and reshoring efforts trying to mitigate the risk around that. So there's no lack of risk right now. And then, of course, I think about 60% of the world's economy has elections this year, including the US, Mexico, and others. And that is, I wouldn't call it a risk, but it's creating some uncertainty that we're all trying to look at and evaluate and try to determine what the best moves are.

MADISON MILLS: Are you seeing a bifurcation in how some of the larger companies and maybe some of the smaller ones are responding to this moment, not only with all the risks you just mentioned, but also just the general uncertainty? I'm curious because we saw that small business optimism in recent surveys really falling off a cliff. Are you sussing out that kind of difference there?

PAUL KNOPP: So B2C feels pretty strong. B2B, business-to-business commerce feels soft at the moment. And so that's a real phenomenon. Some of that is just caution in spending around all the uncertainties we face into, so the tight labor markets, maturing debt that's going to have to be refinanced at higher rates.

There's a number of reasons for businesses to want to be cautious right now. Many businesses in our survey revealed that 62% of CEOs said that they would wait until after the election to do significant M&A or capital expenditures. So there are just a number of things that we're looking at as business leaders to try to understand where we might be going in the future while still acknowledging there's a lot of confidence amongst CEOs about the future.

SEANA SMITH: Paul, what about plans for AI investment? Because the last time we were speaking, that has been a priority for many of the businesses leaders that you have been speaking with. What are you seeing in terms of planned investment there? And has that shifted at all?

PAUL KNOPP: So the last time we visited, a top investment priority for CEOs was generative AI. And that was months ago, last year. And this latest survey said 56% of CEOs are going to maintain that level of investment. So they're maintaining a very high level of investment, with 41% increasing that. 31% of that 41% is actually 50% or more increase in spending around generative AI. So generative AI is a huge investment priority for organizations. We're actually seeing generative AI moving from pilot in use cases to actual implementation at businesses now.

Businesses are using it in ways to become more efficient in their operations, more productive, but very much looking at ways to disrupt their own business models and create new revenue streams for their organization. So generative AI is truly going to be transformative. There's no doubt that-- it's still in a fairly nascent stage, but we're also seeing companies put it in real places to drive efficiencies in organizations and to some degree, reimagine their business models.

MADISON MILLS: It's interesting to hear that they're already kind of starting to implement it because one question we've had is, there's all this AI buzz, but is it going to work? And it sounds like it is. Paul, thank you so much for joining us.

PAUL KNOPP: Pleasure being here today. Thank you for having me.

MADISON MILLS: We appreciate it.