Kevin Warsh will head his first meeting as Federal Reserve chairman this week, but according to a new CNBC Fed Survey, he is expected to do very little — at least initially.
The 32 respondents, including economists, fund managers, and strategists, see no rate change at this meeting or any meeting through 2027 as a group. However, 88% do expect the Fed at this week’s meeting to remove the easing bias in the statement that has signaled the Fed’s next move would likely be a cut.
Warsh, handpicked by President Donald Trump, takes over a central bank that has been under pressure for lower rates. But high inflation, spurred in part by Trump’s tariffs and the war with Iran, has taken those cuts off the table for now and pushed them out of the forecast horizon.
A More Hawkish Committee
“While Warsh is generally perceived as dovish, he will inherit a committee that has become noticeably more hawkish,” said Gregory Daco, chief economist at EY. “Several policymakers have recently argued that rate hikes should remain an option if inflation remains above target, and concerns around energy-driven inflation pressures have only reinforced that bias.”
Warsh himself has said rates could be lower but has not said if his outlook has changed amid the recent surge in inflation and stronger jobs numbers. The announcement of a potential deal with Iran, which came after the survey was taken, could give Warsh flexibility to cut rates sooner than currently expected. As it is now, respondents don’t believe that high oil prices will lead the Fed to hike but see the funds rate basically unchanged from the current level of 3.62% through 2027.
A person familiar with the matter told CNBC that Warsh will have more breathing room to decide on rates from Trump because the president trusts him.
A Resilient Economy
On the plus side, the survey shows Warsh taking the helm of an economy that has been resilient to recent shocks. Forecasters nudged up their growth outlook, lowered the probability of recession from 33% in April to 25%, and reduced their expectations for the unemployment rate.
The outlook for US GDP rebounded to 2.2% for this year, up a quarter point, and to 2.3% for next year. Both recovered most of the downgrade from the prior survey linked to the hostilities with Iran. The unemployment rate for this year and next is expected to be mostly unchanged from the current 4.3% rate.
Several respondents said the outlook for a healthy job market should lead the Fed to focus on the inflation side of its mandate, which it has missed for most of the past six years.
“The FOMC ought to hike rates to nip rising inflation expectations in the bud and get closer to neutral policy,” said John Ryding, chief economic advisor for Brean Capital.
Support for Warsh’s Ideas
While lower rates have little support among respondents, Warsh’s ideas for changes to the Fed’s communications have backing. Fifty-nine percent believe Fed officials talk too much, compared with 38% saying it’s the right amount. That generally supports Warsh’s call for less talk from the Fed.
But 59% expect Warsh to hold news conferences after every meeting, something Warsh would not commit to in his Senate confirmation hearing in April.
And when it comes to the dot plot, where officials write down their expectations for the funds rates in the years ahead, 53% believe it should be eliminated altogether. Most ideas for changing it — including releasing it days after the meeting or linking the dots to individual members’ specific economic forecasts — were rejected by majorities of respondents.
AI Bubble Concerns
While inflation is viewed as the No. 1 risk to growth, the bursting of the AI bubble is a close second. A substantial 84% majority see artificial intelligence stocks as overvalued, though that’s down 6 percentage points from December. The average respondent sees AI stocks overvalued by about 21%. Meanwhile, 69% see stocks in general as overpriced, the lowest level in a year.
“AI reality versus belief is a risk to the equity market and to consumers who depend on equity market gains,” said Drew Matus, chief market strategist at MetLife Investment Management. “The wealth effect is the likely conduit for the next downturn.”
The Bottom Line
The US Federal Reserve is expected to hold interest rates steady through 2027 under new Chairman Kevin Warsh, according to a CNBC Fed Survey. Eighty-eight percent of respondents expect the Fed to remove its easing bias at this week’s meeting, signaling that rate cuts are off the table for now. High inflation, driven by tariffs and the Iran war, has pushed rate cuts out of the forecast horizon. The economy is expected to remain resilient, with GDP growth rebounding and recession fears easing. A majority of respondents support Warsh’s call for less communication from the Fed, and many believe the central bank’s “dot plot” should be eliminated.
