Even with a new Fed chair appointed by President Trump expected to take office in the coming months, CNBC survey respondents predict only modest changes in funds rates over the next two years.
The results reflect pricing in the federal funds futures market and indicate that neither Wall Street nor economic forecasters believe the next Fed chair will cut overnight interest rates to the low levels demanded by the president.
The average outlook is for two more quarter points, or 50 basis points, of rate cuts this year, with no rate cuts expected yet in 2027, according to the survey. Fund rates are expected to settle at around 3% this year and remain there through 2027. President Donald Trump, who is currently considering who to replace Federal Reserve Chairman Jerome Powell, has called on the Fed to lower interest rates to 1%, saying U.S. interest rates should be among the lowest in the world.
If inflation is 2%, the president is effectively calling for negative real interest rates.
One possible reason for the steady interest rate outlook is the improvement in growth prospects. Gross domestic product (GDP) is expected to grow 2.4% this year and 2.2% next year, both above the economy’s potential growth rate that the Fed typically sees. The unemployment rate is expected to rise by just one-tenth from current levels to 4.5% by the end of the year, before falling slightly next year.
“We expect solid and more consistent economic growth to continue in 2026, supported by fiscal stimulus and easy monetary policy,” said Kathy Bojancic, chief U.S. economist at Nationwide.
The consumer price index will end the year at 2.7%, but is expected to fall to 2.5% by 2027. Since the CPI could be about half a percentage point higher than the Fed’s recommended measure of personal consumption spending inflation, this projection suggests the Fed will get closer to its goal by the end of this year and reach it by 2027.
Also, the fact that the probability of an economic recession over the next year has fallen from 30% in the December survey to 23% is also working against interest rate cuts. It rose to 53% in May following “Emancipation Day” tariffs, which the president largely cut.
Will there be any impact from customs duties?
Tariffs remain a significant concern, but 58% say the majority of their impact is on the economy. Still, a majority said it would continue to depress growth, unemployment and retail margins, while pushing up inflation. The average respondent expects tariffs to increase inflation by about 0.3% this year.
On the bright side, we see the economy gaining momentum with capital investment and strong consumer demand. More than two-thirds believe business investment will be stronger in 2026 than in 2025. This is likely the result of not only huge spending on artificial intelligence, but also tax reform stimulating investment.
Nearly three-quarters think consumer spending will be higher or the same as in 2025, which is good news since last year was a strong year.
Decision Economics’ Allen Sinai said another potential positive is that productivity is already increasing even before the impact of artificial intelligence is widespread in the economy. “A sustained and sustainable ‘productivity boom’ of historic proportions is driving a surprisingly strong and steady economic expansion with no acceleration in inflation, the labor market is weak but not weak, and corporate earnings and profit margins are surprisingly strong,” he said, calling it a “1990s-like situation.”
Still, there are risks, with respondents’ top concern being “uncertainty surrounding the Trump administration’s actions and policies,” followed by the bursting of the AI bubble, threats to Fed independence, high inflation, and tariffs.
The survey was conducted in response to President Trump’s tariff threats against Greenland, and several respondents also cited “geopolitical risks” as a major area of concern.
“Policy uncertainty acts as a heavy tax on the economy,” said Diane Swonk, chief economist at KPMG. “It causes paralysis. We were hoping for policy uncertainty to ease heading into 2026. So far, that hasn’t happened.”
But Russell Investments’ Douglas Gordon believes the good will outweigh the bad in the economy in 2026. “There is no shortage of potential sources of exogenous risk for capital markets,” he said. “But this is against the backdrop of a seemingly fading impact from tariffs (excluding new tariffs), ‘good enough’ labor data, rising but not worryingly high inflation, and, perhaps most importantly, still-strong earnings.”
Warsh against the leader
The survey found some discrepancies between respondents and prediction markets about who the next Fed chair will be. BlackRock’s Rick Rieder leads the prediction market, while 50% of respondents expect former Federal Reserve Governor Kevin Warsh to fill President Trump’s post.
Forecasters feel optimistic that the next Fed chair will run policy independently of the White House, even though Warsh’s nomination is seen as more dovish than Fed Chair Powell, compared to Kevin Hassett, chairman of the National Economic Council, in a previous poll.
While respondents think the president should nominate Warsh, 44% think he should nominate Fed Director Chris Waller. While 42% of respondents are evenly divided on whether Mr. Powell should remain on the board after his term ends, the majority are concerned about the Fed’s independence if Mr. Trump’s appointees become a majority on the board.
However, respondents believe that the Federal Open Market Committee will oppose policies whose chair is too dovish or hawkish.
