The software update that caused widespread disruptions around the world on Friday sent shockwaves through business and financial systems worldwide reminiscent of the sudden shutdowns early in the pandemic.
But there is expected to be little lasting economic damage from the outage, which halted operations at banks, hospitals, airlines, government agencies and small businesses that rely on Microsoft.
Many companies are expected to report financial losses from the incident, but it is not yet clear what the final figure will be. Stocks fell on Friday, with all three major indexes down nearly 1%. Cybersecurity company CrowdStrike, which was at the center of the selloff, was hit particularly hard, dropping more than 11%, wiping billions of dollars from its value.
But experts say, at least for now, the incident is unlikely to have any obvious ripples through the economy: Grounding flights for a day, canceling surgeries and making bank accounts inaccessible would not be enough to cripple the country’s robust growth. But experts warn that the outage, caused by a botched CrowdStrike software update, has exposed the fragility of an economy built on a small number of interconnected technology systems.
“This is a function of global capitalism, a fundamental economic effect of the internet that we’ve built,” says Bruce Schneier, a security engineer and research fellow at Harvard University’s Berkman Klein Center for Internet and Society. “We have a very fragile system where companies are rewarded for making the most profit possible. So how do you do that? Through monopolies, eliminating inefficiencies, running lean. And as long as it works, it’s really great. But when it fails, it fails badly.”
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The shock to the global economy comes just as many industries are recovering from years of pandemic-related disruptions that upended supply chains and led to widespread shortages and higher prices.
This week’s blackouts highlight “something we were already worried about” – that the world and the global economy are becoming increasingly vulnerable to supply shocks, said Diane Swonk, chief economist at KPMG.
“This makes the world more vulnerable to inflation,” she added. “It’s been brought to an extreme during the pandemic, and we’ve adapted to it.”
Additionally, customers reported that the power outages caused payment systems to crash across the country, resulting in cash-only purchases at grocery stores, gas stations and even the zoo.
At Rojo Car Wash in Norwood, Massachusetts, an employee said the credit card system was down all day Friday, causing a loss of sales. “Cars see the ‘cash only’ sign and just drive by,” she said. “It’s been like that all day.”
Still, while the incident has raised many concerns across the economy, experts say for now it’s unlikely to have a noticeable impact on an otherwise buoyant economy marked by a robust job market and robust growth.
This won’t affect the Federal Reserve’s decision to cut interest rates or Republican and Democratic candidates’ economic policy overhauls, but it highlights how looming risks from outside the financial world can quickly ripple through both major industries and small businesses.
“We built a decentralized internet to withstand nuclear war, but it wasn’t prepared for a single point of failure that we’re seeing now being felt around the world,” said Tyler Moore, a cybersecurity professor at the University of Tulsa. “We may be dealing with the effects of this for a long time, and if it continues, the economic fallout could be significant.”
Appearing on “60 Minutes” in February, Fed Chairman Jerome H. Powell said the work to protect and defend financial institutions is never done. He has frequently cited large-scale cyber threats as one of his concerns or something that could suddenly undermine the Fed’s mission.
“You’re always elevating your game on the offensive end, you’re always elevating your game on the defensive end,” Powell said, “and you’ve got to keep investing and keep catching up or getting ahead. It never stops. There’s never going to be a moment where you can take a breath and say, ‘OK, we’ve got this.’
The Federal Reserve has broad powers to oversee and regulate the U.S. financial system, and a spokesman said Friday morning that “critical” Federal Reserve systems were operating normally and that the central bank was working with “affected companies and other government agencies” to assess the situation.
Even among the Federal Reserve’s peers, the outage appears to have had a minimal impact: Norway’s central bank said it had resolved some technical issues that affected its liquidity operations, Bloomberg reported, but it’s unclear how much of a connection that is to the broader outage.
The New York Stock Exchange was also open as usual, but the market was in the red after a week of declines.
Jeremy Kress, an expert on banking regulation at the University of Michigan, said the banking system appears to be under control. But the sudden meltdown was a reminder of the dangers of online outages. Kress noted that some regulators are calling for banks to increase the amount of capital they must hold to protect against cyber outages.
Others in the industry said protecting the country’s financial system from cyberattacks and other technology glitches has become a top priority in recent years, and this week’s meltdown reinforces the need to prepare not just for malicious attacks but also for mundane technology updates and other protocols that could unwittingly ripple across the industry, they said.
“The question has been around for the last few years about what happens if you have a single point of failure,” said Jason Healy, a senior fellow at Columbia University who focuses on cyberconflict studies. “Everybody’s sharing the same software, and if one thing goes down, everybody’s affected. That’s what’s happening now, and we need to be prepared so that we don’t find ourselves in a bind in these situations.”
Rohit Chopra, director of the Consumer Financial Protection Bureau, said in an interview with CNBC on Friday morning that there are no major issues with essential payment and banking services. But he said we’re getting a “taste” of what can happen when the financial sector and other key industries become too dependent on a few cloud and tech companies. Chopra pointed to ransomware attacks that have hit healthcare companies, auto dealerships and others in the past few months.
“This is a situation that could really cause problems across the economy,” he said. “I’m pretty hopeful that what we see today is inconvenience, not disruption. But of course, we’re only just getting a taste of it.”
