We live in a time when businesses, large and small, are asking their advisors, “What does this mean for me?” more than ever before. Yesterday, it was a most-favored nation policy; today, it’s The OBBB.
Policy uncertainty is typically highly countercyclical, which means that those in charge tend to make abrupt policy changes only during bad economic times.
Current economy wasn’t doing bad, objectively.
Policy uncertainty puts a halt to corporate spending. When policy uncertainty doubles, corporate investment can decline by a quarter (Gulen, Ion 2016).
During the 2007-2009 crisis, policy uncertainty alone accounted for roughly one-third of the 32% drop in capital investments during that period.
Why the impact feels uneven:
— Irreversible commitments, likenew plants or long-cycle R&D are the first to be postponed.
— Revenue tied to government, like Medicare/CMS pricing, experiences steeper pullbacks.
— Backlogs accumulate for four to five quarters before projects restart, so today’s hesitation translates into tomorrow’s capacity crunch.
What strategic executives should do now:
— tag every project by reversibility and policy exposure, keeping options open.
— add a “policy risk premium” to hurdle rates instead of imposing blanket spending freezes.
— pre-wire scenario triggers so that when clarity exceeds a certain threshold, funding is automatically released.
Recovery from policy-related uncertainty tends to last two to three years, with aftereffects echoing for up to eight quarters.
In short, we are in for a long ride. Let’s talk.