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It's not going to be one and done. A majority of respondents to the CNBC Fed Survey now forecast at least two rate hikes over the next one year, with a third predicting three or more. It's a stark change from last month when just 46% expected a hike ahead. That's grown to 86% with 55% expecting more than a single hike. Since last month, Fed Chairman Kevin Warsh delivered a hawkish speech in Jackson Hole, Wyoming, oil prices surged, inflation failed to cool, and respondents now seem to believe inflation has spread beyond energy and won't take care of itself without action by the Fed. "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. Dutta quoted Fed Governor Christopher Waller, who has said, "Sternly staring at inflation until it melts before our withering gaze is not an option." Most of the 29 respondents, including economists, fund managers and strategists, believe that the Strait of Hormuz will remain closed at least a month longer and that oil prices will stay elevated for longer than six months. "The renewed march higher in oil, gasoline, and diesel prices adds to concerns higher energy prices could spill over to other goods and services and inflation expectations," wrote Kathy Bostjancic, chief U.S. economist at Nationwide. There's already concern that that's happening. Roughly three-quarters of respondents see the inflation problem as broader than just energy prices. CPI forecasts rose for both 2026 and 2027, with the average forecast rising to near 3.5% for this year and then settling in at 2.85% in 2027. Several respondents, however, were skeptical of the Fed's ability to lower fuel-driven inflation with rate hikes. "The FOMC faces a challenge in showing institutional credibility vis-a-vis the inflation piece of its mandate relative to its limited ability to impact supply-driven inflation using its rate setting tool," said Douglas Gordon, senior portfolio manager at Russell Investments. The Fed will decide on rates Wednesday at the conclusion of its two-day meeting. The last Federal Open Market Committee meeting was in July. Despite a shift to forecasts for multiple Fed rate hikes, the growth outlook has not changed much. Recession concerns remain unchanged with an average 29% probability estimated over the next 12 months, just somewhat above normal. Gross domestic product is still seen at around 2.25% this year and next, up from 2.1% in 2025, and the unemployment rate outlook remains around 4.25%. Forecasts for stocks remain buoyant. The S&P 500 is forecast to maintain its current level through year-end and rise 8% to 8,274 next year. The question is whether the forecasts are compatible. Generally, the Fed has to slow the economy to have an effect on inflation, meaning growth would typically need to dip below potential for inflation to decline. "Economic conditions in the U.S. are incompatible with the Fed's policy rate," wrote Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. "Something has to give — either inflation needs to fall or the Fed has to hike — or the long end of the U.S. yield curve will continue to sell off." Warsh's credibility Views on the communications and independence of Fed Chairman Warsh are largely positive, suggesting that his Jackson Hole speech had an impact. Fifty-nine percent of respondents say he has provided enough information on his economic and monetary policy views; 69% say the administration's push for lower rates will have no effect on the outcome of this month's meeting; and 66% say his conduct of monetary policy is very or mostly independent, though that represents a 9-point decline from the prior survey. Respondents believe that too little information from the Fed chairman could result in less effective monetary policy and more volatility. Just 31% of respondents now say the Fed "talks too much," compared with 68% in July. That could be a sign that respondents support the less loquacious communication from Warsh. While 69% say the Fed should not be regularly providing forward guidance, 59% say it should regularly offer its reaction function, or how they expect policy to develop relative to incoming data. Warsh was still seen by far offering the most important information about the outlook and policy, followed by Fed Governor Waller and New York Fed President John Williams. Most Fed bank presidents and other Fed governors were far behind. Continued high inflation, the Iran war and high oil prices were the top three risks to the expansion. But 61% said there is some market risk that could come from ongoing legal battles from the midterm elections. A 46% plurality see the Democrats gaining control of the House while Republicans retain control of the Senate. Twenty-nine percent predict the Democrats winning full control of Congress. See here for full survey results.
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