Fed is likely to lower rates only two more times, even under Trump’s next chair pick: CNBC Fed Survey

Although a new Trump-appointed Federal Reserve governor is expected to arrive in the coming months, respondents to the CNBC survey predict only modest changes in funds rates over the next two years.

The results, which reflect pricing in the Fed funds futures market, show that neither Wall Street nor economic forecasters believe the next Fed chairman will cut overnight interest rates to the low levels the president has requested.

The survey shows that the average outlook is for a further two quarter point, or 50 basis point, cut this year, with no cut yet expected for 2027. It seems that the fund interest rate will be fixed around 3% this year and will remain at this level until 2027. President Donald Trump, who is currently considering who will replace Fed Chairman Jerome Powell, said US interest rates should be among the lowest in the world and asked the Fed to reduce interest rates to 1%.

Given an inflation rate of 2 percent, the president actually wants negative real interest rates.

One reason for the tighter interest rate outlook may be the improving growth outlook. Gross domestic product is estimated to be 2.4% this year and 2.2% next year; both are above what the Fed generally sees as the economy’s potential growth. The unemployment rate is projected to rise by just a tenth from the current level to 4.5% by the end of the year, and to fall slightly next year.

“We forecast continued robust and more consistent economic growth in 2026, supported by fiscal stimulus and easier monetary policy,” said Kathy Bostjancic, Nationwide’s chief U.S. economist. he said.

The consumer price index is estimated to end the year at 2.7% and drop to 2.5% in 2027. The CPI could run about half a point above the Fed’s preferred personal consumption expenditures inflation gauge, so the forecast suggests the Fed will move closer to its target by the end of this year and hit it in 2027.

The decrease in the probability of recession next year from 30% in the December survey to 23% is also effective against interest rate cuts. It rose to 53 percent in May after the “liberation day” tariffs, which the president mostly reduced.

Tariffs remain a major concern, but 58% say the majority of tariff impacts are behind the economy. Yet the vast majority say they will continue to push down growth, unemployment and retail margins while pushing up inflation. The average respondent thinks tariffs have increased inflation by about 0.3% this year.

On the positive side, the economy appears to be gaining momentum thanks to capital spending and a strong consumer. More than two-thirds believe business investment will be stronger in 2026 than in 2025; This is likely a result of massive spending on AI, as well as tax changes encouraging investment.

Nearly three-quarters believe consumer spending will be the same or higher than in 2025. This is good news because last year was a strong year.

Allen Sinai of Decision Economics said productivity, which was already high before the impact of artificial intelligence became widespread in the economy, was another potential plus. “A sustained and sustained ‘productivity boom’ of historical proportions is leading to surprisingly strong and robust expansion without accelerating inflation, a weaker but not weak labor market, and surprisingly strong corporate earnings and profit margins,” he said, calling it “a picture similar to that of the 1990s.”

Still, there are risks that the biggest concern among participants was “uncertainty regarding the Trump administration’s actions and policies,” followed by the bursting of the AI ​​bubble, threats to the Fed’s independence, high inflation and tariffs.

With the survey coming in the wake of Trump’s tariff threats against Greenland, many respondents wrote that “geopolitical risk” was also a key area of ​​concern.

“Policy uncertainty acts as a tax on the economy,” said KPMG chief economist Diane Swonk. “This is paralyzing. I was hoping that policy uncertainty would diminish as we entered 2026. So far, that hasn’t been the case.”

But Douglas Gordon of Russell Investments thinks the good will outweigh the bad for the economy in 2026. “There is certainly no shortage of potential external sources of risk to capital markets,” he wrote. “But this comes against a backdrop of seemingly diminishing tariff impact (save the new ones), ‘good enough’ workforce data, high but not alarming inflation and, perhaps most importantly, still strong earnings.”

Likelihood of Warsh being named compared to National Economic Council Director Kevin Hassett The previous poll leaves forecasters feeling more optimistic that the next Fed chair will handle policy independently of the White House; even though he is seen as more dovish than Fed Chairman Powell.