A growing majority of market professionals now believe the Federal Reserve will cut interest rates later this year, even as inflation remains elevated, according to the latest CNBC Fed Survey.
- When asked how the Fed will navigate the dual challenge of persistent inflation—driven in part by tariffs—and a softening economy, 65% of respondents said they expect rate cuts before the year ends.
- That marks a sharp rise from 44% in March and reflects the highest confidence in rate cuts since the start of the tightening cycle.
Pessimistic Outlook: The survey also revealed a growing sense of pessimism about the near-term economic outlook. The probability of a recession in the next 12 months surged to 53%, up from just 22% in January. That’s the largest two-survey increase since 2022 and underscores concerns that higher prices and restrictive credit conditions are weighing on both businesses and consumers.
- Respondents believe inflation will climb to 3.2% by the end of the year, up from the current 2.4%. However, they expect price pressures to ease back under 3.0% in 2026, though inflation will still run slightly above current levels.
- The unemployment rate, which currently stands at 4.2%, is projected to rise to 4.7% and remain near that level into 2026.
GDP growth forecasts have been downgraded sharply. Respondents now predict the economy will expand by just 0.8% this year, reflecting the impact of tighter monetary policy, global trade tensions, and consumer pullbacks.
- However, looking further out, optimism begins to return. Growth is expected to rebound to about 2% in 2026, buoyed by tax cuts and deregulation policies championed by the administration.
- Many survey participants believe these pro-business measures will help stabilize the economy and set the stage for a more sustainable growth trajectory.
Impact on Rates: If traders believe the Fed will cut rates, this could encourage some bond buying to lock in the higher rates, helping to push down rates in the process.
