CNBC Fed Survey: Confidence in Interest Rate Cuts Amid Inflation and Recession Fears

Fed Survey Insights on Interest Rates

• 📈 Respondents to the CNBC Fed survey are increasingly confident the Fed will cut interest rates this year, despite forecasts for higher inflation.
• ⚠️ However, they do not believe the Fed will act preemptively, with 100% expecting rates to remain unchanged at the current meeting.
• 📉 Over the course of the year, 60 basis points below the current rate is the expected reduction in the funds rate, with a further 100 basis points expected by the end of next year.

Recession Concerns and Fed Dilemma

• 📊 There is a 53% likelihood of a US recession, a significant 30-point increase since January, marking the biggest survey increase since 2022.
• ⚖️ The Fed faces a dilemma of higher prices from tariffs but weaker growth, with 65% of respondents believing the Fed will cut rates in this scenario, up from 44% in the prior survey.
• 📉 The change in sentiment is linked to the surge in recession chances, a rise in the expected unemployment rate, and a greater belief that tariff-related inflation will be more controlled in 2026.

Inflation and Economic Outlook

• 🎯 The expected inflation outlook for 2025 is around three and a quarter percent, but it is projected to come back down to 2.6% next year.
• 💼 Lou Breen of DRW Trading suggests the Fed will react more quickly to labor market weakness, indicating that when the unemployment rate rises, the Fed will lower rates.
• ⚙️ The outlook for growth in 2025 has come down sharply but is expected to bounce back in 2026 to 2%.
• ⚠️ Unemployment is projected to increase by half a point but remain at 4.6% for 2026.

Timing of Potential Rate Cuts

• 🗓️ While cuts are in the forecast to address expected economic weakness, the Fed is not seen acting preemptively.
• ⏳ The first cut is not fully forecast until July, followed by a second cut in September, according to the survey.