The Fed is expected to cut interest rates by a quarter of a percentage point at its meeting this week, and could do so at its next two meetings, according to a CNBC Fed poll from October.
But 38 survey respondents, including economists, strategists and fund managers, voiced concerns about a lack of data on the government shutdown, an artificial intelligence bubble, still-high inflation and whether politics are playing a role in the Fed’s decisions.
“Flying blindfolded into a snowstorm with no backup instruments is not the best situation for monetary policy,” said Guy Lebas, chief fixed income strategist at Janney Montgomery Scott. “The situation is even worse if there are mountains nearby.”
While 92% of respondents think the Fed will cut rates at this meeting, only 66% think it should, and a minority of 38% oppose lowering rates.
“Politics clearly influences the Fed’s interest rate decisions more than financial conditions,” said Richard Bernstein, CEO of Richard Bernstein Advisors. “Financial conditions are close to historically accommodative, with gross domestic product (GDP) hovering between 3.5% and 4%, financial assets in tatters and inflation still well above the Fed’s target. In more normal times, the Fed would not have cut interest rates.”
Following this week’s cuts, 84% of respondents expect another cut in December, and 54% expect a third cut in January. Rate cuts are expected to total 100 basis points this year and next, bringing the federal funds rate down to 3.2% by the end of 2026.
Some think the Fed shouldn’t cut rates, but others are looking for even bigger steps.
“The weak labor market and government shutdown are increasing recession risks, suggesting a need for deep, pre-emptive rate cuts,” said Allen Sinai, chief economist and strategist at Decision Economics. “Ongoing productivity growth is the main reason for the economic resilience and the extraordinary stock market boom, which is not a bubble.”
Views on stocks and the economy
Nearly 80% of respondents said AI stocks are either very or somewhat overvalued, with an average overvalue of more than 20%. As a result, they believe the S&P will rise above 7,200 and near 7,700 by 2027, but that stocks will end the year close to current levels and rise only 5% next year.
“The most important short-term and long-term driver of the U.S. macro landscape is artificial intelligence (AI) and whether it is overhyped, underhyped, or well-hyped,” said Troy Rutka, senior U.S. economist at SMBC Nikko Securities Americas.
John Wronski, president of Wronski Group, was more assertive: “Once the AI bubble bursts, only economically strong participants in the AI space will survive.”
82% of those surveyed said the government shutdown has not affected stock prices. About 45% of respondents expect the shutdown to end this month, and a further 34% expect it to end by November.
Most people expect most or all of the average monthly costs, equivalent to 0.3% of GDP, to be recovered once the government reopens. However, only 5% of people are “very confident” that they have an accurate picture of the economy based on publicly available data, and 71% are “somewhat confident.”
“Fed officials can’t draw many conclusions about anything, and changes in inflation or employment conditions could lead to a second round of rate cuts unwarranted, so they should remain on hold pending further information before compounding their policy mistake,” said Lindsey Piegza, chief economist at Stifel.
Respondents were evenly divided on the risk of the Fed easing without enough data, with 42% saying the risk was that the Fed cut rates too much and 40% saying the risk was that the Fed cut rates too little.
For the fifth time in six surveys since reciprocal tariffs were announced in April, growth forecasts have again risen slightly.
Currently, GDP is expected to rise to 1.9% this year, 2.2% in 2026, and 2.3% in 2027. Unemployment is expected to peak at around 4.5% next year, while inflation is expected to end the year at around 3%, decline slightly to 2.8% in 2026, and decline again moderately to 2.6% in 2027.
Tariffs remain the biggest risk to economic expansion, but nearly two-thirds of respondents said their impact on inflation has so far been smaller than expected.
But forecasters believe they will eventually get it right. The biggest reason cited for the decline in tariff inflation is that “the full impact on consumer prices has not yet been felt.” The second most frequently cited answer is that companies are not passing on as much of the tariffs as expected, and some believe this situation will not last long.
