CNBC Fed Survey: 77% of respondents say the Fed should keep rates unchanged

CNBC Fed Survey Summary

Key Concepts:

• Federal Reserve (Fed) interest rate policy
• Inflation forecasts
• Recession probability
• CPI (Consumer Price Index) outlook
• Unemployment rate projections
• Fed Funds Rate
• Tariffs impact on inflation
• Economic growth outlook
• Market expectations for rate cuts (June, July, September)
• Hard data vs. soft data

I. Overview of the Fed Survey Results

The CNBC Fed Survey reveals forecasts for higher inflation coupled with increased concerns about a potential recession. While respondents overwhelmingly believe the Fed will hold rates steady at the current meeting, they are increasingly confident that the Fed will eventually cut interest rates, although not preemptively.

• Current Rate Decision: 100% of respondents expect the Fed to keep rates unchanged at the current meeting.
• Future Rate Cuts: The Fed Funds Rate is forecast to decline from 4.33% currently to 3.71% and then to 3.36% by the end of next year.
• Recession Probability: The probability of a recession is estimated at 53%, a significant increase of 30 points since January. This is the largest two-survey increase since 2022.

II. Fed's Response to Economic Conditions

The survey explores how the Fed might react to a scenario of higher prices due to tariffs but weaker economic growth.

• Likely Action: 65% of respondents believe the Fed will cut rates in this scenario, up from 44% in the previous survey. Only 26% think the Fed will hold, down from being the majority choice in March.
• Rationale for Rate Cuts: The shift in expectations is linked to the surge in recession probability, a rise in the expected unemployment rate, and a belief that tariff-related inflation will be more controlled in 2026.

III. Inflation and Growth Outlook

The survey provides specific forecasts for inflation (CPI) and economic growth.

• CPI Outlook: The CPI is expected to rise from 2.41% in March 2024 to 3.24% before declining to around 2.6% in 2026.
• Growth Outlook: Economic growth is projected to be anemic at 0.8% in 2024 but is expected to bounce back to 2% next year, potentially aided by Fed rate cuts.
• Unemployment Rate: The unemployment rate is forecast to increase by half a point to 4.7% and remain at 4.6% in 2026.

IV. Market Expectations for Rate Cuts Timing

The survey indicates a shift in market expectations regarding the timing of the first Fed rate cut.

• First Cut Timing: The first rate cut is not fully forecast until July, with the second cut not fully forecast until September.
• June Meeting: There is a divided opinion on whether the Fed will cut rates in June.
• Futures Market: The futures market reflects this uncertainty, with only a 30% probability of a rate cut in June, increasing to 77% in July.

V. Fed's Data-Driven Approach

The discussion emphasizes the Fed's reliance on hard data rather than speculation or soft data.

• Data Dependency: The Fed makes decisions based on actual economic data, not on anticipations or concerns about potential future developments.
• Employment Report Impact: The stronger-than-expected employment report released last Friday immediately reduced the probabilities of near-term rate cuts.
• Current Economic Momentum: The economy still exhibits decent momentum, with no widespread layoffs reported at large companies.

VI. Labor Market Dynamics

The report touches on the current state of the labor market, highlighting a shift in hiring practices.

• Hiring Slowdown: The current situation is characterized by not a lot of firing, but also not a lot of hiring.

VII. Notable Quotes

• Lew Breen (TRW Trading): "The Fed must project inflation fighting stance, but in most circumstances they will react more quickly to labor market weakness when the unemployment rate rises a few more tenths. The Fed will lower rates and suggest economic weakness will dampen inflation."

VIII. Synthesis/Conclusion

The CNBC Fed Survey paints a picture of a complex economic landscape with higher inflation and rising recession concerns. While the Fed is expected to hold rates steady in the short term, the survey suggests increasing confidence in future rate cuts, driven by economic weakness and a belief that inflation will eventually moderate. The timing of these cuts remains uncertain, with market expectations shifting towards July and September. The Fed's data-driven approach will be crucial in determining the precise timing and magnitude of any policy adjustments.