Kevin Powell's first interest rate meeting since taking the helm of the Federal Reserve has attracted much attention, but the market's expectations for his initial actions are extremely limited.
Early Thursday morning Beijing time, the Fed will announce its latest interest rate decision. According to a CNBC Fed Survey, 32 surveyed economists, fund managers, and strategists generally believe that the Fed will not adjust rates at this meeting or at any meeting before 2027.
At the same time, 88% of respondents expect the Fed to remove the "dovish bias" language in this week's statement—an indication that the next move was previously seen as a rate cut. This adjustment in expectations signifies that the market's bet on a rate cut has officially disappeared from the recent outlook.
High inflation is a key reason for the unchanged interest rates.
Respondents pointed out that the Trump administration's tariff policy and the US-Iran conflict have raised inflation, nearly eliminating room for a rate cut. Meanwhile, though Powell himself is widely seen as a dove, he is taking over a committee with a noticeably hawkish stance, with some officials publicly stating that if inflation remains above target, a rate hike should remain an option.
Rate Expectation: No Hope for a Rate Cut, and a Rate Hike is Not the Benchmark Scenario
The survey results show that respondents' forecast for the federal funds rate remains basically unchanged at the current 3.62% level until 2027. While high oil prices pose inflationary pressure, respondents do not believe this will trigger a rate hike.
Gregory Daco, Chief Economist at EY, said: "Despite Powell being generally seen as a dove, he will take over a committee with a noticeably hawkish stance. Several policymakers have recently advocated that if inflation remains above target, a rate hike should remain an option, and energy-driven inflationary pressures will only further strengthen this tendency."
Powell himself has said that rates could be lower, but in the face of recent inflation rebounds and strong employment data, he has not clearly stated whether he has adjusted his outlook. After the survey was completed, news of a potential US-Iran agreement emerged, which may provide Powell with the operational space for a rate cut earlier than expected, but this is still uncertain at present.
John Ryding, Chief Economic Advisor at Brean Capital, takes a more hawkish stance, stating: "The FOMC should raise rates to curb rising inflation expectations and bring policy closer to a neutral level." Guy LeBas, Chief Fixed Income Strategist at Janney Montgomery Scott, also pointed out that the short-term fragility in the labor market is behind us, and the central bank's dual mandate is now significantly tilted towards the inflation side.
Economic Resilience: Receding Recession Risk and Raised Growth Outlook
Despite a somewhat tight interest rate outlook, improved economic fundamentals have provided a relatively favorable backdrop for Powell's succession.
Survey participants have raised their 2026 U.S. GDP growth expectations to 2.2%, up 0.25 percentage points from the previous survey; the 2027 outlook is at 2.3%, both recovering most of the earlier downward revisions prompted by U.S.-Iran tensions. The recession probability has decreased from 33% in April to 25%, and the unemployment rate expectations for the next two years remain around the current level of 4.3%.
Economist Hugh Johnson wrote, "Improved economic and employment conditions, modest stock market gains, characterize the current phase of the stock market-economy-interest rate cycle. Early warning signs of a bull-market-ending recession have not yet emerged."
Many respondents believe that a healthy job market suggests the Fed should focus on the inflation target—a target that has largely eluded them over the past six years.
Communication Reform: Market Supports "Less Talk," But Press Conference Still Hanging
Beyond monetary policy, Powell's advocacy for reforming the Fed's communication approach has garnered widespread support among survey participants.
The survey shows that 59% of respondents believe Fed officials speak too much, with only 38% considering the amount of speech appropriate, aligning well with Powell's stance of reducing public remarks. However, 59% of respondents expect Powell to hold a press conference after each meeting—creating a gap with his refusal to commit to this during the April Senate confirmation hearing.
Regarding the "dot plot" issue, 53% of respondents believe this tool should be completely scrapped. Various reform proposals, including releasing the dots a few days after the meeting or tying the dots to specific economic forecasts of officials, were mostly rejected by the majority of respondents.
Risk Spectrum: AI Bubble and Inflation Tied as Top Threats
The survey ranks inflation as the primary risk to growth, with the AI bubble burst closely following. 84% of respondents believe AI stock valuations are too high, a 6-percentage-point drop from December, with an average overvaluation of around 21%. Additionally, 69% of respondents see the overall stock market as overvalued, although this proportion is at its lowest level in nearly a year.
Drew Matus, Chief Market Strategist at MetLife Investment Management, warns, "The disconnect between reality and expectations for AI poses a risk to the stock market and consumers reliant on the wealth effect from the stock market. The wealth effect is likely to become a transmission channel for the next economic downturn."
The interviewees are relatively conservative about the stock market outlook, expecting the S&P 500 to approach 8,000 by 2027, representing a growth of about 5.5% from the current level.
On the other hand, concerns about credit market risk have eased. Currently, only 53% of respondents believe there is a "slight increase" in credit market systemic risk, compared to 75% in March this year, with an additional 3% believing the risk has "increased significantly."
John Donaldson, Head of Fixed Income at Haverford Trust Co., stated, "Despite some pessimistic forecasts, we have not seen credit markets facing widespread threats. Any softness is limited to CCC and CC-rated credits, with no signs of pressure on credit spreads in the financial sector."
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