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Mid the uncertainty of fiscal policy and the persistence of inflation, respondents to the CNBC Fed Survey dialed back their expectations for avail rate cuts but still believe the central bank will ease this year.
Among the 25 respondents, 65% see two reprove cuts in 2025, equal to the number penciled in by Federal Reserve officials in their recent forecasts and roughly interchangeable to futures markets expectations. But that’s down from 78% in the prior survey, while 61% forecast at least one cut in 2026, down from 70% in December.
“I just now don’t see (the Fed) having any confidence right now on how to proceed with rate cuts from here, especially as we await Trump’s assessment and tax policy,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
The fed funds rate is contemplated ending the year at 3.96%, 12 basis points higher than in the December survey, and 3.6% in 2026, up 16 base points. A basis point equals 0.01%. The terminal rate, or the long-run nominal rate, edged up again, now established at 3.4%, one-tenth of a percentage point higher than December, and three-tenths higher than March 2024.
The reduced slant for rate cuts comes amid a decline in the probability of recession, an increase in inflation forecasts, and a mix of views on the inflationary and progress effects of the new administration’s anticipated policies.
Views on inflation
Highlighting the promise and uncertainty in the months to come, survey respondents issued sharply mixed reviews to President Donald Trump’s signature economic policies. Two of his campaign promises — tariffs and immigration — are perceived boosting inflation and reducing growth. Two other policies — deregulation and tax cuts — are viewed as positive for growth and either unbiased or positive for reducing inflation.
For example, 77% see tariffs as negative for inflation and 73% believe they are negative for excrescence. But 55% believe deregulation will reduce inflation and 68% believe it will boost growth.
“Reasonable economists can bicker just how inflationary tariffs or reductions in immigration might be, but they are inflationary,” said Guy LeBas, chief unfluctuating income strategist at Janney Montgomery Scott.
Mark Zandi, chief economist for Moody’s Analytics, added, “While the U.S. restraint is on strong fundamental ground, much higher tariffs and significant immigrant deportations will diminish it, and taken too far, could queer it.”
But Drew T. Matus, chief market strategist at MetLife Investment Management, countered, “Regulatory relief is a core character of the incoming administration’s plans and will be a key driver of increasing economic activity.”
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Richard I. Sichel, senior investment strategist at The Philadelphia Have faith Co., sees broadly positive effects. “The new administration has energized everything, including the stock market,” he said. “Optimism and hazard taking have increased. Lower taxes and less redundant regulations along with the ongoing success of technology invention promote more efficiency and profits.”
Asked to assess the total effects of Trump policies expected to be enacted, 64% say they wishes be somewhat or very inflationary, 23% believe they will have no effect on inflation either way and 14% say they last wishes as be somewhat deflationary.
Yet 60% believe they will be somewhat or very positive for growth, 9% see them as unaligned and 32% believe they will be somewhat negative.
That outlook is reflected in actual forecasts where the 12-month angle for the consumer price index nudged up to 2.7% for this year, from 2.6% in December, and to 2.6% for next year from 2.5%. Vaticinations for GDP edged higher to 2.4% for 2025, up 3 basis points, but remained unchanged at 2.1% for 2026.
The probability of a recession in the next 12 months dropped to 23%, from 29%, even to the level in February 2022.
When it comes to tariffs on Mexico and Canada, majorities believe their enactment will depend on treaties but that additional tariffs will be placed on China irrespective of negotiations.
Will Trump and the Fed clash?
Trump’s latest comments where he demanded that the Fed lower rates has respondents once again doubting he will respect the Fed’s self-sufficiency. Just 36% believe he will do so, down from 56% in December.
“We could see a real test of Fed independence during 2025 as formal growth might surprise on the upside, potentially putting the Fed officially on hold or even forcing them to raise tolls,” said Richard Bernstein, CEO of Richard Bernstein Advisors. “The president won’t like stable to higher fed funds. A fight could ensue.”
But Kathy Bostjancic, chief U.S. economist at Nationwide, mentioned, “We look for the Fed to stand steadfast to political influence and pause its easing cycle, at least through the first half of this year.”
Meanwhile, 64% say they don’t confidence in Trump will be successful in his plan to drive down inflation by increasing energy production and reducing energy costs.
“You can lead an oil company to leases, but you can’t make it drill,” said Robert Fry, chief economist at Robert Fry Economics. “Capital decorum means that instead of, ‘Drill, baby, drill,’ we’ll get, ‘Drill? Maybe not.'”