CNBC Fed Survey Reveals Shifting Sands on Rate Cuts and Trump’s Economic Policies
The latest CNBC Fed Survey paints a complex picture of the US economy’s trajectory, revealing a softening expectation for interest rate cuts amidst lingering inflation concerns and the uncertainty surrounding President Trump’s newly implemented economic policies. While a majority of respondents still anticipate rate reductions in 2025, the level of certainty has decreased significantly since the previous survey. This shift underscores the evolving economic landscape and the potential for conflicting signals from fiscal and monetary policy.
Key Takeaways: A Shifting Economic Landscape
- Reduced Expectations for Rate Cuts: Only 65% of respondents now foresee two rate cuts in 2025, down from 78% previously. This reflects a growing uncertainty about the Fed’s path forward.
- Mixed Views on Trump’s Policies: Respondents hold sharply divided opinions on the impact of President Trump’s economic policies, with tariffs and immigration seen as inflationary and growth-dampening, while deregulation and tax cuts receive more positive assessment.
- Inflationary Outlook: The 12-month outlook for the Consumer Price Index (CPI) has edged higher, to 2.7% for 2025 and 2.6% for 2026, suggesting persistent inflationary pressures despite the moderated rate cut expectations.
- Reduced Recession Probability: The probability of a recession in the next 12 months dropped to 23%, from 29%, suggesting an improved overall economic outlook.
- Questionable Fed Independence: Concerns remain about the potential for conflict between President Trump and the Fed, given his public calls for lower interest rates, with only 36% of respondents believing Trump will respect the Fed’s independence.
Views on Inflation: A House Divided
The CNBC Fed Survey highlights a deep divergence in opinions regarding the impact of President Trump’s economic policies on inflation and growth. While policies such as tariffs and changes to immigration are widely seen as negatively impacting both variables (77% and 73% negative assessments respectively), deregulation and tax cuts are viewed more favorably, with a significant portion of respondents believing they will boost growth and reduce inflation.
Conflicting Expert Opinions
This division extends to expert commentary. Guy LeBas of Janney Montgomery Scott stresses the inherent inflationary nature of tariffs and immigration restrictions, stating, “**Reasonable economists can disagree just how inflationary tariffs or reductions in immigration might be, but they are inflationary.**” Similarly, Mark Zandi of Moody’s Analytics cautions that these policies could negatively affect the economy’s fundamentals, highlighting a potential downside risk.
However, counterpoints exist. Drew T. Matus of MetLife Investment Management points to the positive impact of **regulatory relief**, emphasizing its role in “**increasing economic activity.**” Richard I. Sichel of The Philadelphia Trust Company adopts a largely optimistic viewpoint, asserting that the new administration’s policies have created a climate of increased optimism and risk-taking, ultimately driving economic efficiency and profits. This division reflects the deep uncertainty inherent in predicting the complex interplay of fiscal and economic forces.
Overall Assessment of Trump’s Policies
When considering the cumulative effect of Trump’s policies, 64% of respondents anticipate them to be somewhat or very inflationary, clearly highlighting a prevailing sense that President Trump’s policies will exert upward pressure on inflation. However, a significant majority (60%) believes the policies will be somewhat or very positive for growth, indicating a broad expectation of positive growth outcomes. This conflicting prediction of increased growth alongside increased inflation highlights the uncertainty surrounding the economic consequences of these bold policy changes.
Will Trump and the Fed Clash? A Looming Confrontation?
President Trump’s direct intervention urging lower interest rates has reignited concerns over the potential for conflict between the executive branch and the Federal Reserve. This has led to a significant drop in respondents’ confidence in Trump’s willingness to respect the Fed’s independence, from 56% in December to only 36% in the latest survey. This reduced trust carries significant implications, as it reflects increasing doubts over whether the Fed will be able to pursue monetary policy free from undue political pressure.
Potential for Conflict and Economic Uncertainty
Richard Bernstein of Richard Bernstein Advisors outlines a scenario where the Fed’s response to unexpected positive growth could lead to a confrontation with the President. “**We could see a real test of Fed independence during 2025 as nominal growth might surprise on the upside, potentially putting the Fed officially on hold or even forcing them to raise rates,**” Bernstein notes. “**The president won’t like stable to higher fed funds. A fight could ensue.**” This signifies a potential flashpoint where the desire for lower interest rates (to boost the economy) might clash with the Fed’s mandate to combat inflation, creating economic unpredictability.
Conversely, several economists remain confident in the Fed’s ability to resist political pressure. Kathy Bostjancic of Nationwide expresses the view that, “**We look for the Fed to stand steadfast to political influence and pause its easing cycle, at least through the first half of this year.**” However, even this assertion of independence points to possible future friction, in the face of possible future economic developments and potential presidential pressure. The survey thus highlights a potential crisis of confidence as the President himself continues to challenge the role and mandate of the Federal Reserve, introducing a factor of unpredictability into economic policymaking.
The Energy Dilemma: A Further Complication
Furthermore, the survey reveals significant skepticism regarding President Trump’s ability to lower inflation primarily through boosting domestic energy production. A substantial 64% of respondents doubt the success of this strategy. Robert Fry of Robert Fry Economics offers a candid assessment: “**You can lead an oil company to leases, but you can’t make it drill.** **Capital discipline means that instead of, ‘Drill, baby, drill,’ we’ll get, ‘Drill? Maybe not.’**” This assessment highlights both the limitations of government intervention in the energy sector and the role of market dynamics in shaping energy supply, demonstrating the limitations of forceful governmental attempts to directly control inflation through manipulating specific energy sectors.
In conclusion, the CNBC Fed Survey highlights a period of economic uncertainty marked by shifting expectations about interest rate cuts and divergent views on the effects of President Trump’s economic policies. The potential for conflict between the Fed and the executive branch casts a long shadow over the coming year, underscoring the need for careful economic stewardship and clear communication from both institutions to maintain investor confidence and guide the economy towards sustainable growth.
