CFOs in 2023 may want to think twice before planning for an end to the turmoil of the past two years.

A new variant of COVID-19 may flare up, inflation persists well above the Federal Reserve’s 2% target and geopolitical tensions, such as Russia’s invasion of Ukraine, loom large in even the most carefully crafted scenario planning.

The U.S. government is trying to curb many of the risks, with mixed results so far. One of its antidotes, as prescribed by the Securities and Exchange Commission (SEC), will require CFOs to spend more on compliance and plan for more disclosure and detailed risk management.

Other trends, such as a possible slide into recession, are beyond a CFO’s control.

Here’s a look at four of the trends for 2023. 

1. Close combat against inflation

Battling inflation is a core mission of the Federal Reserve. Since 2021, inflation has won.

Fed Chair Jerome Powell acknowledged early last year that policymakers underestimated price pressures.

In March, three months before the consumer price index (CPI) hit a four-decade high of 9.1% on an annual basis, policymakers began the most aggressive pullback in stimulus since the 1980s. Over the course of last year, they pushed up the federal funds rate by 4.25 percentage points.

Fed tightening reduced the CPI to 7.1% by November while also increasing the risk of recession. The probability of a downturn during the next 12 months is 65%, Goldman Sachs said Thursday, citing consensus estimates while adding that its own researchers see a 35% probability of recession.

Powell has repeatedly said the Fed will curb inflation even at the cost of setting back businesses and employment. But with price gains easing and the risk of a downturn rising, some economists fear policymakers in 2023 will pause or reverse course before bringing down inflation to their 2% target.

“What worries me is if inflation starts approaching 5%, they might let up and then we’ll see inflation shoot back up,” according to Aleksandar Tomic, director of the graduate programs in applied economics and applied analytics at Boston College.

Inflation this year will likely persist somewhere between 5% and 7%, Tomic predicted in an interview. “I don’t think there is any way we will get to 2% within 12 months without really bringing the economy down tremendously.”

Based on their median projections last month, Fed officials forecast that they will raise the federal funds rate by December to 5.1% — from a current range of 4.25% to 4.5% — before trimming the benchmark to 4.1% by Dec. 2024. They see the economy growing 0.5% this year and 1.6% in 2024.

Powell acknowledged that the forecasts are educated guesses at best. “No one knows with any certainty where the economy will be a year or more from now,” he said at a Dec. 14 press conference after the Fed released its projections.

Given the murky outlook, CFOs should avoid borrowing at variable interest rates or use swaps to hedge against rising rates, Tomic said.

Scenario planning is also essential when preparing for the future economic or monetary policy landscape, Tomic said, adding “whoever tells you anything with certainty is just lying to you.”

“This time last year, nobody thought Russia would invade Ukraine,” he said. “For many companies that turned everything upside down.”

2. Job openings go unfilled

Many CFOs eager to fill some of the economy’s 10.5 million job openings may need to keep “help wanted” signs posted well into 2023.

The tight labor market will probably persist for at least the next few months, according to Cristian deRitis, deputy chief economist at Moody’s Analytics.

“The dynamic in terms of demand exceeding supply is going to hold for a long while,” he said in an interview. “I don’t see a reversal of the trends there unless we go into recession,” he said, noting that Moody’s forecasts a “slowcession” of low growth rather than a downturn.

The unemployment rate in December fell to 3.5% from 3.6% the prior month as U.S. employers added 233,000 jobs, the Labor Department said Friday. The total number of available jobs was unchanged.

CFOs aiming to hire workers face several obstacles, including limits on immigration, an aging and shrinking labor force, and a trend of pandemic-induced early retirement, deRitis said.

Fed policymakers worry that the strong labor market will fuel wage pressures and worsen inflation by compelling companies to raise prices. Wages rose last year by 4.6%, according to the Labor Department.

“Wages are running well above what would be consistent with 2% inflation,” Powell said at a Dec. 14 press conference.

At the same time, compensation gains lagged inflation by more than 2 percentage points, prompting many workers to quit jobs for higher pay elsewhere and compounding wage pressures.

For some workers, “the only way for your salary to keep up with inflation is to change jobs,” Tomic said.

Eventually, as the Fed’s aggressive monetary tightening takes hold, unemployment will likely rise this year to 4.2%, deRitis said. Average monthly job growth will probably slump to around 75,000 from 370,000 in 2022, taking “some of the pressure off wage growth that we’ve been seeing that would certainly help the Fed’s case.”

Annual growth in wages may fall to between 3% and 3.5%, deRitis said.

CFOs leery of raising wages too much may want to consider providing workers with more job flexibility, including out-of-office work arrangements, deRitis said.

“It’s key for the employer to be creative in terms of the ways that they compensate employees,” he said. “I think you can build loyalty and high retention by having flexible policies.”

3. SEC demands disclosure

Since his swearing in as SEC chair in April 2021, Gary Gensler has laid out aggressive goals for increasing disclosure by public companies.

Investors need more information on companies’ cybersecurity, workforce diversity and vulnerability to crypto asset markets, Gensler has said.

Some proposed rules would shake up management by CFOs and their C-suite colleagues, compelling more detailed measurement of employee demographics and an overhaul in aspects of risk management, according to David Brown, a partner at Alston & Bird.

“We are forcing companies through disclosure to change the way they operate,” Brown said in an interview. “It’s extraordinarily ambitious.”

Gensler in March sparked criticism — and more than 14,000 public comment letters — after releasing a 490-page proposed rule that would require publicly traded companies to provide detailed disclosures on carbon emissions and climate risk.

The SEC aims to mandate that companies describe on Form 10-K their strategy toward climate risk, including plans to achieve any targets they have set for curbing such risk.

Companies would need to disclose data on their greenhouse gas (GHG) emissions, either from their facilities (so-called Scope 1 emissions) or through their energy purchases (Scope 2). They would also need to obtain independent attestation of their data.

Clear, uniform disclosures on the costs from climate change will benefit both businesses and investors, according to Gensler. Businesses will gain detailed insights into potential costs and opportunities, while investors will be able to better gauge risks at specific companies and compare risk levels across industries.

Companies, industry groups, lawmakers and asset managers — including BlackRock — have focused much of their criticism on the mandate that companies disclose in detail Scope 3 carbon emissions by their upstream and downstream suppliers and vendors.

Gensler has said the requirement would only apply to large companies that have already committed to Scope 3 measurement. Yet critics say the rule would impose onerous costs and challenges in measurement on small businesses, such as farmers, woven into the supply chains of big companies.

The SEC in coming months may sidestep opposition to the Scope III requirement and other controversial aspects of the proposed rule by rolling out the final regulation in two phases, Brown said.

In the first phase, the agency would require measurement and disclosure of Scope 1 and Scope 2 emissions and details on climate risk, including how the C-suite and board track and manage such risks, Brown said.

In the second phase, companies would need to gain external assessments of their GHG emissions and climate risk calculations, and report measurement of climate risks on their 10-Ks, Brown said. As part of this phase, large companies that made prior pledges to disclose Scope 3 emissions would be required to do so.

In a two-step approach, “people still may challenge it, but there may be less of a chance that the challenge is successful,” Brown said.

Despite opposition, the SEC will push forward with the regulation, he said. “I don’t think there’s any chance whatsoever that they’re going to shelve it.”

4. Sharper accounting oversight

The implosion of crypto exchange FTX and absence of financial controls revealed in its bankruptcy filings — such as the use of emojis in an on-line chat platform to approve disbursements — will sharpen scrutiny of the accounting industry and its standards this year, experts say.

While some accounting experts are quick to note that regulations won’t prevent those who flout the law from harming investors, others say the FTX failure will likely intensify efforts by regulators to avert failures in accounting and financial reporting.

Soon after FTX collapsed in December, the SEC called on companies to fully disclose crypto asset risks, joining efforts by lawmakers, investors and creditors to gauge the crypto market’s vulnerabilities.

“We don’t know where FTX is going to fall out … it’s a period of time where we’re trying to see where all these things are going to land,” Kecia Williams Smith, an accounting professor at North Carolina Agricultural and Technical State University, said in an interview.

The blowback from FTX, although big, will probably not prompt the same sweeping changes in accounting and financial reporting that followed the Enron accounting scandal, she said. “We’re tiptoeing on the precipice but I don’t think we’re back at Enron proportions.”

But the failure of FTX, which owes more than $3 billion to its top creditors, will undoubtedly spotlight for the Financial Accounting Standards Board (FASB) the problems it needs to address as it sets standards for crypto-currency this year, according to Kelly Richmond Pope, an accounting professor at DePaul University in Chicago.

“This fraud is so egregious it’s forcing you to see how bad it can actually be and how negligent founders and CEOs can be,” Pope said. FTX “gives [FASB] something to dissect … We need to see this so we can set up the right protocols for us to follow in the future.”

The FTX debacle played out late last year as CFOs and their finance and accounting teams were already facing sharper regulatory scrutiny of financial reporting and a push for more disclosure.

The FASB begins 2023 with many ambitious projects carrying over from 2022. In addition to crypto standards, it also plans to revamp outdated accounting for software and is poised to beef up the income tax information that companies would be required to disclose in financial reports.

The board is also making the most sweeping segment accounting change in 25 years — a move that would require companies to require more frequent and comprehensive data broken down by business units.

Meanwhile, the Public Company Accounting Oversight Board (PCAOB), under its new Chair Erica Williams, pledged in its 2022-2026 draft strategic plan to increase average penalties and enforce some rules for the first time.

Intensified enforcement will persist in 2023, Smith predicted.

“CFOs who are trying to have a good 2023 just don’t want to be on the bad actors list,” Smith said. To avoid sanctions, finance chiefs should work closely with their audit committees and keep in close communication over changes in disclosure requirements and other matters.

“The common theme … is making sure the company’s disclosures are transparent and not misleading to investors,” Smith said. “The preventative measure is to always have investors top of mind, because that’s the kind of enforcement actions we’re seeing.”