A majority of respondents to the CNBC Fed Survey now expect at least two Fed rate hikes over the next year, up sharply from last month. The shift comes as the Federal Open Market Committee meets Tuesday and Wednesday, with traders pricing in a hike on Wednesday and Treasury Secretary Scott Bessent defending the administration's economic record before Congress.
Expectations for Federal Reserve rate hikes have hardened fast, reshaping the outlook that currency traders price into the dollar. Eighty-six percent of CNBC Fed Survey respondents now expect a hike this month, up from 46% just a month ago, and 55% expect more than one increase over the coming year.
Survey shows a sharp shift in the outlook
A third of the 29 respondents — economists, fund managers and strategists — now predict three or more hikes over the next year. The Fed will decide on rates Wednesday at the conclusion of its two-day meeting, its first gathering since July. Traders were pricing in a roughly 92.7% chance of a hike as of Tuesday, according to CME Group's FedWatch tool, which would mark the Fed's first rate increase since 2023.
Inflation pressures widen beyond energy
Respondents pointed to Fed Chairman Kevin Warsh's hawkish Jackson Hole speech, surging oil prices and inflation that has failed to cool. Roughly three-quarters of survey respondents now see the inflation problem as broader than energy prices alone, and the average CPI forecast rose to near 3.5% for this year and 2.85% for 2027. According to CNBC: "There is nothing in the data that suggests inflation will return to target 'soon'", said Neil Dutta, head of economic research at Renaissance Macro Research.
Douglas Gordon, senior portfolio manager at Russell Investments, was skeptical the Fed could tame fuel-driven inflation with rate hikes alone, citing its limited ability to influence supply-driven price pressure.
Bessent defends record as yields climb
The rate debate has spilled into Washington. Treasury Secretary Scott Bessent testified before the House Financial Services Committee on Tuesday as Democrats pressed him on the economy. The 10-year Treasury note traded at 5% as the hearing opened, and the 30-year fixed mortgage rate average topped 7% last week.
Bessent said wages for the bottom 25% of earners have risen faster than the top group of earners, even as lawmakers pushed him on the ongoing sell-off in Treasuries. The economy has also continued producing jobs, with unemployment low at 4.1%.
Sources: CNBC, CNBC, Yahoo Finance
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