The Fed is likely to keep cutting interest rates, but multiple dangers lurk, CNBC survey finds
According to the October CNBC Fed Survey, the Fed is expected to cut interest rates by a quarter point at its meeting this week and may cut rates at the next two meetings.
But there were concerns among 38 survey participants, including economists, strategists and fund managers, about a lack of data on the shutdown, the AI bubble, still-high inflation and whether politics plays a role in the Fed’s decisions.
“Flying through a snowstorm blindfolded and without backup instrumentation is not a great place for monetary policy,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. “It’s even worse when there are mountains in the area.”
While 92 percent of those surveyed believe that the Fed will increase interest rates at this meeting, only 66 percent believe that an interest rate cut should be made, and a minority of 38 percent oppose a rate cut.
“Politics, rather than financial conditions, clearly influence the Fed’s interest rate decisions,” said Richard Bernstein, CEO of Richard Bernstein Advisors. “Financial conditions are almost historically easy, with GDP running at 3.5-4%, financial assets rising rapidly, and inflation remaining well above the Fed’s target. In more normal times, there is no way the Fed would cut interest rates.”
Following this week’s outage, 84% of respondents see a new decline in December and 54% see a third decline in January. A total of 100 basis points of interest rate reduction is expected this year and next year, and the fund interest rate is expected to be reduced to 3.2% by the end of 2026.
Although some think the Fed should not make cuts, there are also those who expect bigger moves.
“Weakness in the labor market and government shutdowns increase the risk of a recession and suggest that larger preemptive rate cuts are necessary,” said Allen Sinai, chief economist and strategist at Decision Economics. “The productivity boom in the process is the main reason for the economy’s resilience and the dramatic rise in non-bubble capital markets.”
Views on stocks and the economy
Almost 80 percent of survey respondents say AI-related stocks are extremely or slightly overvalued, with an average gain of more than 20 percent. As a result, they believe stocks will finish the year near the current level and rise only modestly by 5% next year, but the S&P will be above 7,200 and near 7,700 in 2027.
“The most important short- and long-term dynamic in the U.S. macro environment is artificial intelligence (AI) and whether it is over- or under-hyped,” said Troy Ludtka, senior U.S. economist at SMBC Nikko Securities Americas.
John Lonski, president of Lonski Group, was more definitive: “When the AI bubble bursts, only financially strong participants in the AI space will survive.”
Many expect the average monthly cost of 0.3% of GDP to be largely or fully recouped following the government reopening. But only 5% are “extremely confident” and 71% are “somewhat confident” that they are getting an accurate picture of the economy from available published data.
“Fed officials can’t come to much conclusion on anything and so should probably remain on hold and wait for additional information before potentially compounding the policy error further with a second round of rate cuts if it is unwarranted by the evolution of inflation and hiring conditions,” said Stifel chief economist Lindsey Piegza.
Respondents are evenly split on the risk of the Fed expanding without enough data; While 42 percent said that the risk is that the central bank will cut too much interest rate, 40 percent said that the risk is that it will cut too little interest rate.
Growth forecasts rose again for the fifth time in six surveys since reciprocal tariffs were announced in April.
GDP is currently projected to be 1.9% for the year, 2.2% in 2026 and 2.3% in 2027. The unemployment rate is expected to reach around 4.5% next year, while inflation is forecast to finish the year around 3%, falling only marginally to 2.8% in 2026 and modestly again to 2.6% in 2027.
Tariffs remain the No. 1 risk to economic expansion, but nearly two-thirds of respondents say the impact on inflation is less than they expected so far.
But forecasters believe they will eventually be proven right; The most important reason for lower tariff inflation is that “the full impact on consumer prices has not yet been felt.” The second most cited answer is that companies do not pass on as many tariffs as expected; This is a situation that some believe will not last long.
