The Federal Reserve will pause its rate decisions this week, according to CNBC's latest survey of 30 fund managers, strategists and economists, with 93% expecting no change at the meeting. However, the consensus fragments after that: 76% anticipate a rate increase at the Fed's December meeting, and more than half forecast an average of about two additional hikes next year.
The survey reveals sharp disagreement about whether the Fed should act now. While 30% of respondents said the Fed should raise rates at the current meeting, others warned against it. Richard Bernstein, global head of macro investing at Janus Henderson Investors, expressed frustration with the Fed's caution, noting that nominal GDP is running between 6% and 8% while leading inflation indicators are strong. Mark Zandi, chief economist at Moody's Analytics, countered that despite elevated inflation, there is little evidence it is becoming embedded in the economy, and geopolitical risks argue against further hikes. At least two Fed voters are expected to dissent from the decision to keep rates unchanged.
On the inflation outlook, 70% of respondents see the problem as broader than just energy prices. The U.S. crude oil benchmark is forecast at $88 a barrel six months ahead, according to the survey, up from $82 in the September survey but below the current level of $101. When asked what measures could reduce inflation, a plurality of 40% said the Fed must slow economic growth below its potential rate, compared with 27% who believe slowing is unnecessary and 23% who say only modest slowdown is needed.
The survey shows mixed economic expectations. Forecasts for gross domestic product this year rose to 2.4%, while 2027 growth is projected at 2.2%, both above the potential growth rate. The probability of a U.S. recession within the next year stands at 26%, down from 29% in the prior survey. Unemployment is expected to remain at 4.2% through year-end but rise to 4.4% in 2027. The Consumer Price Index is seen declining to 3.6% from the current 3.7% pace, falling further to 2.6% next year.
Bond yields remain a concern for respondents. The 10-year Treasury yield is expected to stay above 5% this year before dropping slightly to 4.8% in 2027. Respondents identified high inflation, strong growth, heavy debt issuance and expectations for higher Fed rates as equally responsible for elevated yields, with 50% specifically citing government debt as the primary driver. The survey also found 63% see market risk from potential legal challenges that could extend congressional election uncertainty, with more than half believing Democrats will control both houses of Congress following next week's election.
For savers and borrowers, the outlook means elevated interest rates are likely to persist through the end of the year even as the Fed pauses, while higher yields on savings accounts and bonds may gradually ease as inflation moderates next year.