A recent media poll of the Federal Reserve shows that 93% of respondents expect the Fed to hold rates steady at this week's meeting, but 76% expect a rate hike at the next meeting in December, and more than half believe there will be about two more rate hikes on average next year. 70% believe inflation is a more widespread problem than rising energy prices. 40% believe the Fed must keep growth below potential levels to address inflation. 30% believe a rate hike should be implemented at this meeting, and respondents expect at least two voting members of the Fed to dissent.

Key survey findings: 93% expect a pause this week, 76% expect a rate hike in December.

The Federal Reserve has a lot of work to do, but it won't do it in October. This is the key finding of a recent media survey of Fed officials. The survey, which covered 30 fund managers, strategists, and economists, showed that 93% expect the Fed to hold rates steady at this week's meeting, 76% expect a rate hike at the next meeting in December, and more than half believe the Fed will raise rates about twice more on average next year. Richard Bernstein, global head of macro investing at Janus Henderson Investors, said, "After such a long period of monetary and fiscal generosity, nominal GDP running at 6% to 8%, and leading inflation indicators consistently overheating, their hesitation to raise rates is puzzling."

Inflation assessment: 70% believe the problem is more widespread than energy, and 40% believe growth needs to be kept below potential.

The highest percentage of respondents (40%) said the Federal Reserve must keep growth below potential to address inflation. In contrast, 27% believed the Fed didn't need to slow the economy, and 23% thought a slight slowdown was sufficient. The survey found that 70% believed inflation was more widespread than simply rising energy prices. The U.S. crude oil benchmark is projected to be $88 per barrel in six months, up from $82 per barrel in the September survey, but down from the current level of $101 per barrel. When asked what the Fed should do at its current meeting, 30% said it should raise interest rates now. Respondents expect at least two Fed voting members to dissent against maintaining interest rates. John Ryding, chief economic advisor at Brean Capital, said, "The aggregate demand data (likely over 7%) and inflation data strongly suggest a rate hike is necessary." Not everyone agrees. Some are concerned about a weakening economy. "The situation in Iran is escalating, real wages are falling, interest rates are rising, and the AI-driven stock market looks volatile," wrote Mark Zandi, chief economist at Moody's Analytics. "Inflation is high, but there are few signs that it's solidifying. Now is not the time for the Fed to raise rates further."

Growth and Risks: This year's GDP forecast rises to 2.4%, while the probability of a recession drops to 26%.

Despite facing multiple shocks and challenges, including high inflation, anticipated interest rate hikes, and persistently high oil prices, respondents still believe that economic growth will remain above its potential level. GDP forecasts for this year have risen to 2.4%, and for 2027 to 2.2%, still above the potential level. Growth is projected at 2.05% in 2025. Overall, respondents believe there is a 26% risk of a recession in the US over the next year, down from 29% in the previous survey. The S&P 500 outlook remains stable at around 7600 points this year, with next year's forecast lowered from 8274 points in the previous survey to 8033 points. The index closed at 7676 points on Monday. The unemployment rate is expected to remain stable at 4.2% for the remainder of this year, rising to 4.4% in 2027. CPI is expected to fall to 3.6% from 3.7% in September, and then drop sharply to 2.6% next year. The biggest risks are the ongoing situation in Iran and the bursting of the artificial intelligence bubble. Rob Morgan, senior vice president and market strategist at MOSAIC, said, "Fed Chairman Warsh will need to repeat this maxim in all his future conversations with President Trump: the fastest way to lower US inflation is to end the tariff rhetoric and end the situation in Iran."

Bond yields: 50% believe government debt is the bigger source, 10-year yields expected to stay above 5% this year.

Regarding the causes of high bond yields, respondents almost unanimously pointed to high inflation, high growth, large-scale debt issuance, and expectations of higher federal funds rates. When specifically asked which supply was the bigger problem, 50% cited government debt, 13% cited debt financing AI infrastructure, but a third believed both contributed equally to the rise in yields. On average, respondents expect the 10-year yield to remain above 5% this year, slightly decreasing to 4.8% in 2027. Subodh Kumar, president of Subodh Kumar & Associates, stated, “Inflation is stubbornly persistent amid energy and trade pressures… a benchmark U.S. Treasury yield above 5% represents a new range, not an anomaly.”

Election Risks: 63% believe legal challenges pose a market risk, and over half expect the Democrats to control both houses of Congress.

Congressional elections are also seen as a market risk: 63% of respondents believe that legal challenges could prolong the uncertainty surrounding which party controls Congress, thus posing a certain market risk. John Donaldson, head of fixed income at Haverford Trust Co., stated, "The possibility of persistent election uncertainty is one of the major near-term risks facing the market, and it's well known how much markets abhor uncertainty." More than half of the respondents indicated that the most likely outcome of next week's congressional elections is Democratic control of both houses of Congress, up from 29% in the previous survey. 40% believe the Democrats will control the House of Representatives but not the Senate. Most believe the election results will have little impact on personal or corporate taxes, but 41% expect the deficit to rise. However, this concern is unrelated to respondents' expectations regarding which party controls Congress. Personal growth forecasts also show little difference based on respondents' perceptions of which party will control Congress.

Summarize

A recent media survey of the Federal Reserve shows that 93% of respondents expect the Fed to hold rates steady at this week's meeting, 76% expect a rate hike in December, and more than half believe there will be about two more rate hikes next year. 70% believe inflation is a more widespread problem than rising energy prices, 40% believe the Fed must allow growth to fall below potential levels to address inflation, and 30% believe a rate hike is warranted this time, with at least two voting members expected to dissent. Despite multiple shocks, respondents still expect GDP growth of 2.4% this year and 2.2% in 2027, with the probability of recession falling to 26%. 50% believe government debt is a larger source of rising bond yields, with the 10-year yield expected to remain above 5% this year. 63% believe election legal challenges pose a market risk, and more than half expect Democrats to control both houses of Congress. The biggest risks are the ongoing situation in Iran and the bursting of the AI bubble.