The majority of respondents in a recent CNBC Fed Survey now anticipate at least two interest rate hikes by the Federal Reserve over the next year. This marks a significant shift from last month when only 46% expected any rate increase. Now, 86% foresee hikes, with 55% predicting more than one.
This change in sentiment follows a hawkish speech by Fed Chairman Jerome Powell at Jackson Hole, alongside rising oil prices and persistent inflation. Many respondents believe inflation has spread beyond energy, necessitating action by the Fed. Neil Dutta, head of economic research at Renaissance Macro Research, emphasized that current data does not suggest inflation will return to target levels soon.
Most respondents, comprising economists, fund managers, and strategists, expect the Strait of Hormuz to remain closed for at least another month, keeping oil prices elevated for over six months. Kathy Bostjancic, chief U. S. economist at Nationwide, expressed concerns that rising energy prices could affect other goods and services, influencing inflation expectations.
Approximately three-quarters of respondents view the inflation issue as broader than just energy prices. Consumer Price Index (CPI) forecasts have risen for both 2026 and 2027, with an average forecast nearing 3.5% for this year and settling at 2.85% in 2027. However, some remain skeptical about the Fed's ability to tackle fuel-driven inflation through rate hikes alone. Douglas Gordon, senior portfolio manager at Russell Investments, highlighted the Fed's challenge in maintaining credibility while having limited impact on supply-driven inflation.
The Federal Open Market Committee (FOMC) will announce its rate decision on Wednesday, concluding a two-day meeting. Despite expectations for multiple rate hikes, the economic growth outlook remains largely unchanged. Recession concerns persist with a 29% probability over the next 12 months, slightly above normal. GDP is projected to grow around 2.25% this year and next, with unemployment expected to hover around 4.25%.
Stock market forecasts remain optimistic, with the S&P 500 expected to maintain its current level through year-end and rise 8% to 8,274 next year. However, there are questions about the compatibility of these forecasts. Typically, the Fed needs to slow the economy to curb inflation, which would require growth to dip below potential levels.
Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, noted the incompatibility between U. S. economic conditions and the Fed's policy rate, suggesting that either inflation must fall or the Fed must hike rates, or the long end of the U. S. yield curve will continue to sell off.
Views on Fed Chairman Powell's communication and independence are largely positive. Fifty-nine percent of respondents believe he has provided sufficient information on his economic and monetary policy views. Additionally, 69% think the administration's push for lower rates will not affect this month's meeting outcome, and 66% view his conduct of monetary policy as very or mostly independent, despite a 9-point decline from the previous survey.
Respondents expressed that insufficient information from the Fed chairman could lead to less effective monetary policy and increased volatility. Only 31% now say the Fed "talks too much, " a significant drop from 68% in July. This may indicate support for Powell's more concise communication style. While 69% believe the Fed should not regularly provide forward guidance, 59% think it should offer its reaction function, detailing how policy might develop in response to incoming data.
Powell is seen as the most informative on the outlook and policy, followed by Fed Governor Christopher Waller and New York Fed President John Williams. Other Fed bank presidents and governors rank much lower in perceived importance.
Continued high inflation, the Iran War, and elevated oil prices are considered the top three risks to economic expansion. However, 61% of respondents also see potential market risks stemming from ongoing legal battles related to the midterm elections. A 46% plurality predicts Democrats gaining control of the House while Republicans retain the Senate, with 29% expecting Democrats to win full control of Congress.
