Fed Seen Raising Rates at Least Twice in Coming Year as Inflation Concerns Mount

A majority of economists and strategists surveyed by CNBC now anticipate that the Federal Reserve will implement at least two interest rate increases over the next 12 months, signaling a significant shift in market expectations just one month after a more dovish outlook dominated.

According to the latest CNBC Fed Survey, 86% of respondents now project a rate hike is forthcoming, up from 46% a month ago. Among those expecting increases, 55% foresee more than a single move, while a third predict three or more hikes. This marks a stark departure from previous sentiment, reflecting growing anxiety that inflation has become entrenched rather than transient.

Several factors have converged to alter the consensus. Fed Chairman Kevin Warsh delivered a notably hawkish address at the Jackson Hole Economic Policy Symposium on August 28, reiterating that the central bank’s 2% inflation target is a “firm and fixed” goal. Simultaneously, oil prices surged following the likelihood that the Strait of Hormuz will remain closed for at least another month, with many respondents expecting elevated energy costs to persist beyond six months.

Data also shows that inflation has failed to cool as quickly as anticipated. Neil Dutta, head of economic research at Renaissance Macro Research, noted that current data does not suggest inflation will return to target “soon.” He referenced comments by Fed Governor Christopher Waller, who recently stated that simply “sternly staring at inflation until it melts before our withering gaze is not an option,” implying that active policy intervention is required.

The survey indicates that roughly three-quarters of the 29 respondents view the inflation problem as broader than just energy prices. Consequently, average Consumer Price Index (CPI) forecasts have risen. The median projection for CPI this year is now near 3.5%, up from previous estimates, with 2027 inflation expected to settle at 2.85%.

Kathy Bostjancic, chief U.S. economist at Nationwide, highlighted the spillover risk, writing that the renewed rise in oil, gasoline, and diesel prices raises concerns that higher energy costs will spread to other goods and services.

However, some experts question the efficacy of monetary policy in this environment. Douglas Gordon, senior portfolio manager at Russell Investments, pointed out the challenge the Federal Open Market Committee faces in maintaining institutional credibility when its primary tool has limited impact on supply-driven inflation.

Despite the shift toward tighter monetary policy expectations, the macroeconomic growth outlook has remained largely steady. Recession fears are unchanged, with the average probability estimated at 29% over the next 12 months, which respondents consider only slightly above normal levels. Gross Domestic Product is projected at approximately 2.25% for both this year and the next, a slight improvement from 2.1% in 2025. The unemployment rate is also expected to hold steady around 4.25%.

Equity markets remain a bright spot in the forecasts. The S&P 500 is expected to maintain its current level through the end of the year and climb 8% to reach 8,274 in 2027. This raises a fundamental tension in the economic model: traditionally, the Fed must slow economic growth below potential to effectively reduce inflation, yet respondents do not appear to be pricing in a significant economic downturn alongside these rate hikes.