While markets expect Kevin Hassett to be named the next Federal Reserve chair, he is pointedly not the choice of respondents to the CNBC Fed Survey.
The December survey shows 84% believe President Donald Trump will tap Hassett, director of the National Economic Council, to head the central bank. But only 11% think that’s what the president should do. Fed Governor Christopher Waller is the favored pick of 47% of respondents, followed by Kevin Warsh at 23%. But only 5% of respondents think Trump will pick either of the two.
Concern about Hassett looks to be centered on his commitment to the Fed’s dual mandates and independence. 76% of respondents think the next Fed chair will be more dovish than current Fed chief Jerome Powell — that is, quicker to cut rates if labor markets weaken and slower to raise them in the face of above-target inflation. A 51% majority believe the next Fed chair is likely to fulfill the president’s desires for lower rates, compared to 41% who believe he will act independently.
When it comes to this week’s meeting, respondents expect a hawkish cut, that is, a cut followed by a pause. But they also but also show deep divisions over whether the fed should cut at all.
While 87% believe the Fed will reduce rates, just 45% think it should. Two dissents are expected and just 35% forecast a cut in January.
“GDP is tracking at nearly 4%, inflation remains above target, financial conditions remain very easy, and the deglobalization of product and labor markets continues,” said Richard Bernstein, CEO of Richard Bernstein Advisors. “Given that backdrop, it seems ill-advised to discount the inflation risks associated with further rate cuts.”
Scott Wren of Wells Fargo Investment Institute added: “The Fed will cut in December even though you can make a very rationale argument that they should not do anything.”
The growth outlook has been ticking up and is now running at 2% this year and a bit higher next year. Inflation is forecast to remain above the 2% target for the next couple years.
“Continued high inflation” ranks as the No. 1 risk to the economy, up from the No. 4 spot in October, followed by concern about a bursting of the AI bubble.
Diane Swonk, chief economist at KPMG, said: “Most are underappreciating the likely stimulus due to record tax refunds in the first half of 2026. That means we are also likely understating the risk that inflation could stick.”
And not much downside is seen in the job market, with the unemployment rising only a few tenths next year and declining in 2027.
Still, several respondents believe the Fed needs to cut because of actual or forecast weakness in the job market.
Allen Sinai of Decision Economics wrote: “The Federal Reserve is behind the curve again, this time on the widespread weakening of the labor market. A “preemptive” 50 bp cut in the federal funds rate is the right thing to do.”
Survey respondents dialed in a 6% gain for the S&P 500 next year and another 6% advance for 2027 despite increased concern that AI stocks are in a bubble. 90% see AI stocks as overvalued, up from 79% in October. AI stocks are said to be overvalued on average by 21%. Meanwhile, 60% see the level of systemic risk in U.S. credit markets as “somewhat elevated,” up from 53% in October.
