The Federal Reserve is expected to hold off on raising interest rates this week, according to a CNBC survey of 30 fund managers, strategists, and economists. The survey revealed that 93% of respondents anticipate a pause at the upcoming Fed meeting, while 76% predict a rate hike in December. More than half of the participants foresee about two rate hikes next year. Richard Bernstein, global head of macro investing at Janus Henderson Investors, criticized the Fed's hesitation, citing strong nominal GDP growth and rising inflation indicators.
The survey also highlighted concerns about the broader inflation problem, with 70% of respondents believing it extends beyond energy prices. The U.S. crude oil benchmark is forecasted to be at $88 a barrel in six months, up from $82 in the September survey but below the current level of $101. Opinions varied on the Fed's approach, with some advocating for immediate rate hikes to curb inflation, while others warned of a weakening economy due to factors like the Iran War and falling real wages.
Despite various economic challenges, respondents still expect economic growth to remain above potential, with GDP forecasts at 2.4% for this year and 2.2% for 2027. The risk of a U.S. recession in the next year was put at 26%, down from 29% in the last survey. The outlook for the S&P 500 remained stable at around 7,600 for this year but decreased to 8,033 for next year. Unemployment is forecasted to rise slightly to 4.4% in 2027, while the Consumer Price Index is expected to drop to 3.6% this year and 2.6% next year.
Other significant risks identified included the continuation of the Iran War, the bursting of the artificial-intelligence bubble, and the potential for prolonged election uncertainty. The survey also noted that high bond yields are driven by factors such as high inflation, growth, debt issuance, and expectations for higher Fed funds rates. On average, respondents see the 10-year yield remaining above 5% this year and dropping slightly to 4.8% in 2027.