Respondents to the CNBC Fed Survey see fewer interest rate cuts than the market’s aggressive outlook, with the central bank starting them later in the year than traders currently hope.
Just 9% see the Federal Reserve cutting rates in March. Fifty percent see a cut in May and only in June is there a majority of 70% predicting that rates go down. Futures markets, meanwhile, place a 37% probability on a March cut and around an 84% chance in May. And while futures markets have priced in between five and six rate reductions this year, survey respondents, on average, see just a bit more than three.
“There is little reason to expect a major slowdown in the economy so the Fed will likely not risk the gains in inflation it has made by easing prematurely,” wrote Joel Naroff, president of Naroff Economics, in response to the survey.
The Fed’s interest rate decision is Wednesday at 2 p.m. ET and will be followed by a news conference by Fed Chief Jerome Powell, where traders will parse his words for any indication on when the central bank may start to move.
It’s fairly typical for this group of Fed watchers to be more closely aligned with the central bank’s outlook than the market. The question remains of who has it right and how much it matters. By 2025, the market, the survey and the Fed forecasts all converge on a funds rate between 3.3% and 3.6%. The debate now is over how fast the Fed gets there.
“(Fed Chair Jay) Powell will push back against the market on what they are pricing in for cuts but still lean into a few,” predicts Peter Boockvar of Bleakley Financial Group. “(It’s a) tough balance because markets hear what they want to hear.”
Economic outlook
While respondents predict a cautious Fed, on balance they think it should be more aggressive: 56% say the bigger risk is that the Fed cuts too late while 44% say the risk is going too early.
The 25 respondents, including economists, strategists and fund managers, were less united on the…
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