Financial risk management insights from a Truist expert
With all the recent discussion over the term “recession”—and whether we’re officially in one—it’s easy to get lost in semantics and statistics and forget what really matters: Where do we go from here? What are the moves we can make right now to foster a more profitable future?
Here, Jeff Messner, head of Financial Risk Management for Truist Securities, shares his insights on what’s happening now, what may lie ahead—and how businesses can stay prepared to pivot when the need arises.
What are the challenges you’ve seen at the start of 2023?
Messner: Inflation is lower, but it’s still high. The world is coming to grips with the idea that inflation is a rate of change. Even if it goes to zero, we’re still going to be in this very high-price environment.
Despite that, employment has remained very, very strong. So, the traditional approach of the Federal Reserve raising interest rates to slow down the economy hasn’t had the expected effect yet.
The Fed originally had hoped it could allow prices to come down somewhat naturally. Instead, the Fed is forced to continue to have its foot firmly on the brake as far as the economy goes.
What’s on the horizon with inflation and interest rates?
Messner: We’re at a little bit of an inflection point now, where the roller coaster is starting to peak at the top of the hill. There are likely more rate increases to come, but by how much?
The uncertainty centers around how long rates will stay high, and how quickly they’ll come down. Will it be a rapid move down because we need to inject liquidity and accommodation because of a recession? Will it be a gradual move down as we relax some of these tight monetary conditions?
That’s exactly why my team is here—because you can’t predict the future. We help clients manage the outcomes, whether it goes one way or the other. Last year was really a reminder that one of our team’s core roles is risk management—and helping clients think about what that risk plan is for their unique circumstances.
What are the top questions from business leaders right now?
Messner: Our larger clients tend to have a wider breadth of liquidity sources, where they have a natural mix of both fixed and floating rate debt. They’re looking to us to help them optimize their capital structure and to guide how they can position their resources for the best returns.
For our medium-size clients and commercial real estate clients, more of them rely heavily on bank funding. And that is predominantly a floating rate. They come to us to help them manage that risk via interest rate hedging products.
All clients are asking: Have I missed the boat on interest rates? If we expect the next Fed rates to move down, should we lock in now? If the Fed is almost done with rate increases, are there still benefits for managing risk? That’s where having a relationship with the Truist Financial Risk Management team comes in.
How does a risk management advisor help leaders navigate those questions?
Sometimes it gets a little too easy to be directionally focused, versus having a risk management strategy. If you wind up paying attention to the squeakiest wheel, it may be too late. Or it may cause you to overlook other key components to long-term success.
For example, we currently have a market that is suggesting that short-term interest rates are going to be higher through the first half of 2023 but lower by 2024. So, do we prepare for a “new normal” of a higher inflation cycle? Or prepare for a recession? Our team works through the possible future scenarios to give our clients insights to make the best strategic decisions.
What are you proactively suggesting to clients now, to be ready for the future?
Messner: Think about your company’s financial plan for 2023 and 2024. Having all your eggs in one basket, whether it’s all on one side of the market or the other, is a very risky situation. So, it’s thinking about the benefits of diversification.
We want to have those holistic conversations with our clients. One of our core values, of being one team, is clients can make one phone call and then we gather all the experts for them. So you don’t have to wonder, “Did I talk to the right person about this?”
It’s our mission to deeply understand each client’s core business goals and then bring in the internal and external partners and the products and tools at our disposal to help the client meet those goals. The most important thing is to keep having these conversations regularly, and that’s what we’re here for.