Markets are betting that Kevin Hassett will be named the next Federal Reserve Chairman, but he was clearly not selected as a respondent to the CNBC Fed survey.
According to a December survey, 84% of respondents thought President Donald Trump would select National Economic Council Chairman Hassett to head the central bank. But only 11% think that’s what the president should do. Federal Reserve Director Christopher Waller was the most popular with 47% of respondents, followed by Kevin Warsh with 23%. However, only 5% of respondents thought President Trump would choose between the two.
Concerns about Mr. Hassett appear to center on the Fed’s dual responsibilities and his commitment to independence. Seventy-six percent of respondents believe the next Fed chair will be more dovish than current Fed Chair Jerome Powell, meaning they will cut rates sooner if the labor market weakens and raise rates more slowly if inflation is above target. A majority, 51%, believe the next Fed chair will likely carry out the president’s desire to lower interest rates, while 41% think the Fed chair will act independently.
Regarding this week’s meeting, respondents expect a hawkish rate cut, or a rate cut followed by a pause. But it also shows that there is deep disagreement over whether the Fed should cut rates.
While 87% think the Fed will cut rates, only 45% think they should. Two dissenting voices were expected, with just 35% expecting a rate cut in January.
“Gross domestic product (GDP) remains near 4%, inflation remains above target, financial conditions remain very accommodative, and product and labor markets continue to deglobalize,” said Richard Bernstein, CEO of Richard Bernstein Advisors. “Given this background, it seems unwise to downplay the inflation risks associated with further rate cuts.”
“Even though you can make a very reasonable argument that the Fed shouldn’t do anything, I think the Fed will cut rates in December,” added Scott Wren of the Wells Fargo Investment Institute.
The growth outlook is on track to remain at 2% this year and slightly higher next year. Inflation is expected to remain above the 2% target for several years.
“Continued high inflation” was ranked as the No. 1 risk to the economy, up from No. 4 in October, followed by concerns about the AI bubble bursting.
“Most people are underestimating the potential for stimulus from record tax refunds in the first half of 2026, which means they are likely also underestimating the risk of inflation taking hold,” said Diane Swonk, chief economist at KPMG.
Furthermore, there are no major downturns in the job market, with the unemployment rate expected to increase by only a few tenths of a percent next year and decline by 2027.
Still, several respondents believe the Fed needs to cut rates because of actual or expected weakness in the job market.
“The Federal Reserve has once again been on the back foot, this time due to widespread weakness in the labor market, and a ‘preemptive’ 50 basis point cut in the federal funds rate is the right thing to do,” Allen Sinai of Decision Economics wrote.
Despite growing concerns that AI stocks are in a bubble, survey respondents expected the S&P 500 to rise 6% next year and another 6% in 2027. 90% of respondents believe AI stocks are overvalued, up from 79% in October. AI stocks are said to be overvalued by 21% on average. Meanwhile, 60% of respondents believe the level of systemic risk in the U.S. credit market is “slightly rising,” up from 53% in October.
