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Expectations for Federal Reserve policy have shifted sharply, with a majority of respondents to the CNBC Fed Survey now forecasting at least two interest rate increases during the next year.

A third expect three or more hikes.

That marks a dramatic reversal from the previous month, when only 46% anticipated a hike. The figure has now climbed to 86%, while 55% expect the central bank to raise rates more than once.

The change followed a hawkish Jackson Hole speech from Fed Chairman Kevin Warsh, a surge in oil prices and inflation that failed to cool. Respondents also increasingly believe inflation has moved beyond energy and will require Fed action.

“There is nothing in the data that suggests inflation will return to target ‘soon,’” said Neil Dutta, head of economic research at Renaissance Macro Research. Dutta also quoted Fed Governor Christopher Waller, who said, “Sternly staring at inflation until it melts before our withering gaze is not an option.”

Most of the survey’s 29 respondents, a group that includes economists, fund managers and strategists, expect the Strait of Hormuz to remain closed for at least another month. They also believe oil prices will stay elevated for more than six months.

“The renewed march higher in oil, gasoline, and diesel prices adds to concerns higher energy prices could spill over to other goods and services and inflation expectations,” wrote Kathy Bostjancic, chief U.S. economist at Nationwide.

That concern is already extending beyond fuel markets. Roughly three quarters of respondents said the inflation problem is broader than energy prices alone, while average CPI projections increased for both 2026 and 2027.

The average CPI forecast rose to nearly 3.5% for this year before settling at 2.85% in 2027. Those projections add pressure to the rate outlook as policymakers confront inflation that respondents increasingly view as persistent and widely distributed.

Some respondents nevertheless questioned whether higher interest rates can effectively address inflation driven by fuel supplies. The Fed’s rate setting tool is designed to influence demand, while the current price pressure described by respondents also involves supply constraints.

“The FOMC faces a challenge in showing institutional credibility vis-a-vis the inflation piece of its mandate relative to its limited ability to impact supply-driven inflation using its rate setting tool,” said Douglas Gordon, senior portfolio manager at Russell Investments.

The Fed is scheduled to decide on interest rates Wednesday, following the conclusion of its two day meeting. Its previous FOMC meeting occurred in July, before survey expectations moved decisively toward multiple increases.

Despite the shift in rate forecasts, respondents made few changes to their economic growth outlook. They placed the average probability of a recession during the next 12 months at 29%, a level described as somewhat above normal.

GDP growth is projected at about 2.25% this year and next, compared with 2.1% in 2025. The unemployment rate outlook remains near 4.25%, while stock projections continue to show confidence in the market.

Respondents expect the S&P 500 to hold around its current level through year end and rise 8% to 8,274 next year. That optimism presents a difficult policy combination because lowering inflation generally requires the Fed to slow economic activity below its potential.

“Economic conditions in the U.S. are incompatible with the Fed’s policy rate,” wrote Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. “Something has to give — either inflation needs to fall or the Fed has to hike--or the long end of the U.S. yield curve will continue to sell off.”

Views of Warsh’s communication and independence remained mostly favorable. Among respondents, 59% said he has provided enough information about his economic and monetary policy views, while 69% said the administration’s push for lower rates would not affect this month’s meeting.

Another 66% described Warsh’s conduct of monetary policy as very or mostly independent, although that represented a decline of 9 points from the prior survey. Respondents warned that too little information from the chairman could produce less effective policy and increased volatility.

Only 31% now say the Fed “talks too much,” down from 68% in July. While 69% oppose regular forward guidance, 59% want the central bank to explain its reaction function and how incoming data may shape policy.

Warsh was viewed as offering the most important information about policy and the outlook, followed by Waller and New York Fed President John Williams. Continued high inflation, the Iran War and elevated oil prices ranked as the three leading threats to the expansion.

Separately, 61% saw some market risk from continuing legal battles related to the midterm elections. A 46% plurality expected Democrats to gain the House while Republicans retained the Senate, and 29% predicted Democrats would win full control of Congress.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.