The Fed is likely to keep cutting interest rates, but multiple dangers lurk, CNBC survey finds

The October CNBC Fed Survey indicates the Federal Reserve is widely expected to cut interest rates by a quarter point this week, with further reductions anticipated in December and January, totaling 100 basis points by late 2026 to reach 3.2%. However, the survey highlights significant concerns among respondents regarding the Fed's decision-making amidst a government shutdown impacting data availability, persistent inflation above target, and potential political influence, with a notable minority opposing current rate cuts given robust GDP growth and easy financial conditions. While some advocate for larger preemptive cuts due to recession risks, others caution against easing without sufficient data, especially as nearly 80% of respondents view AI-related stocks as overvalued, and tariffs remain the primary economic risk despite their muted inflationary impact to date.

Analysis

The October CNBC Fed Survey indicates a strong expectation for the Federal Reserve to implement a 25 basis point rate cut this week, with 92% of respondents anticipating the move. Further reductions are forecast for December and January, totaling 100 basis points by late 2026, bringing the fed funds rate to 3.2%. However, this consensus is met with significant dissent, as only 66% believe a cut is warranted, and 38% actively oppose it.

Concerns among respondents stem from the lack of reliable economic data due to the government shutdown, with only 5% "extremely confident" in current data accuracy. Many argue that robust GDP growth (3.5-4% tracking), easy financial conditions, and inflation remaining above target suggest political influence rather than economic necessity for cuts. Lindsey Piegza of Stifel suggests the Fed should remain on hold given this data uncertainty.

Broader market sentiment reveals nearly 80% of respondents view AI-related stocks as overvalued by over 20%, anticipating modest 5% S&P growth next year despite long-term targets. Tariffs remain the primary economic risk, though their inflationary impact has been less than expected. Forecasters believe the full effect of tariffs on consumer prices is yet to be felt.

Key Decisions for Investors

• Monitor the Fed's communication closely for any shifts in its data-dependent stance, especially given concerns about data reliability and potential political influence on rate decisions.
• Consider hedging strategies or re-evaluating exposure to AI-related stocks given the widespread belief in their overvaluation and the potential for a market correction in this segment.
• Assess the implications of continued tariff risks on specific sectors and company margins, as their full inflationary impact may yet materialize despite current muted effects.