According to a CNBC Fed Survey, the Fed will cut rates less frequently and start doing so later than market expectations.

• In March, only 9% of CNBC Fed Survey participants expect the central bank to reduce interest rates.
• Futures markets give a March cut a 37% probability.
• On average, Fed survey respondents anticipate slightly more than three rate reductions this year, while futures markets predict between five and six.

The CNBC Fed Survey reveals that respondents expect fewer interest rate cuts than the market anticipates, with the central bank delaying the start of cuts until later in the year.

Only 9% of respondents anticipate the Federal Reserve cutting rates in March, while 50% predict a cut in May. However, a majority of 70% see rates going down in June. Futures markets place a 37% probability on a March cut and an 84% chance in May. Despite this, survey respondents expect an average of just over three rate reductions this year, while futures markets have priced in between five and six.

According to Joel Naroff, president of Naroff Economics, there is little reason to anticipate a significant slowdown in the economy, so the Fed is unlikely to jeopardize the inflation gains it has achieved by easing too soon, based on the survey results.

On Wednesday at 2 p.m. ET, the Fed will announce its interest rate decision, which will be followed by a news conference by Fed Chief Jerome Powell. Traders will closely analyze his comments to determine when the central bank may begin to act.

The Fed watchers in this group tend to be more in sync with the central bank's outlook than the market. The question remains: who is correct and how much it matters. By 2025, the market, survey, and Fed forecasts all predict a funds rate ranging from 3.3% to 3.6%. Now, the debate is about how quickly the Fed will reach this range.

Peter Boockvar of Bleakley Financial Group predicts that Fed Chair Jay Powell will push back against the market's pricing for cuts but still lean into a few, as it's a tough balance because markets hear what they want to hear.

Economic outlook

On balance, respondents believe the Fed should be more aggressive, with 56% predicting a cautious approach and 44% fearing the risk of going too early.

The 25 experts, comprising economists, strategists, and fund managers, were not as unanimous on the risks associated with reducing the Fed's $7.6 trillion balance sheet. They anticipate that the quantitative tightening process will conclude in November. The Fed is expected to decrease its total reserves by an additional $1 trillion to $6.6 trillion and reduce bank reserves from the current level of approximately $3.5 trillion to $3 trillion.

If the Fed continues to increase its balance sheet, bank reserves will be almost double their current levels. The central bank aims to stop QT just before reaching the level of "ample reserves." According to a survey, 36% of respondents believe the bigger risk is that the Fed leaves the balance sheet too big, while 16% think the risk is keeping it too small. However, 32% say neither is a significant risk, and 12% believe both risks are equal.

Despite forecasters predicting a slowdown in growth, it was not as severe as they had previously forecasted, with growth coming in above 3% and unemployment remaining relatively stable.

While the average forecast predicts a slowdown in GDP growth to 1.3% and an increase in unemployment by six-tenths of a point to 4.3%, the headline consumer price index is expected to end the year at 2.7%. However, these averages do not reflect the full range of opinions on the outlook.

Robert Fry, chief economist at Robert Fry Economics LLC, stated that despite the inverted yield curve since November 2022, leading economic indicators declining for 21 months in a row, and the M2 money supply decreasing year-over-year, he is still hesitant to abandon his recession forecast. However, he acknowledged that the U.S. economy is less interest-sensitive than it used to be due to various reasons.

Mark Zandi of Moody's Analytics believes that despite potential threats such as geopolitical hotspots and a contested presidential election, the economy's prospects are looking more positive.