Wall Street is still betting on interest rate cuts by the Federal Reserve this year, even as inflation persists and fiscal policy remains a guessing game under Mr.President Donald Trump.
A Jan. 28 CNBC survey showed that 65% of respondents believe the Fed will lower rates twice in 2025, aligning with the central bank’s own forecasts and market expectations.
But confidence has slipped. The number is down from 78% in the last survey. The fed funds rate, which is the Fed’s primary tool for influencing borrowing costs, is now expected to end 2025 at 3.96%, 12 basis points higher than December’s prediction.
By 2026, that rate is seen at 3.6%, up 16 basis points. The terminal rate—often considered the Fed’s long-term target—has edged up to 3.4%, three-tenths of a percentage point higher than March 2024. These revisions come as the market juggles inflation fears, a lowered probability of recession, and mixed signals from Trump’s economic policies.
Trump’s policies divide Wall Street on growth and inflation
Wall Street experts are split on how Trump’s fiscal decisions, including tariffs, deregulation, and tax reforms, will affect the US economy.
According to the survey, 77% of the economists think Trump’s tariffs will push inflation higher, while 73% say the same policies will hurt economic growth.
Analyst Guy LeBas in particular emphasized the inflationary impact of reduced immigration and higher tariffs. “Reasonable economists can disagree just how inflationary tariffs or reductions in immigration might be, but they are inflationary,” he said.
Mark Zandi, chief economist at Moody’s Analytics, shares this concern, pointing out that higher tariffs and large-scale deportations could dent the economy.
Not everyone is pessimistic though. Drew T. Matus reportedly told CNBC that deregulation could unleash growth. Richard Sichel, senior investment strategist at The Philadelphia Trust Co., believes that Trump’s policies have already brought some much-needed optimism in the markets.
In the survey, 64% of respondents said Trump’s policies will likely increase inflation, while 60% expect them to boost growth. But 32% believe the policies could have a negative impact on economic expansion.
Forecasts for the consumer price index, a key measure of inflation, rose to 2.7% for 2025, up from 2.6% in December. GDP growth expectations rose to 2.4% for 2025, although projections for 2026 remained unchanged at 2.1%.
The probability of a recession in the next 12 months fell to 23%, down from 29% in December. The survey shared that respondents are divided on the inflationary effects of Trump’s trade policies with Mexico, Canada, and China.
The relationship between Trump and the Fed is another wildcard. Trump has been publicly sharing for months just how unhappy he is with every single decision the central bank makes.
Just last week, he said he would “force them” to cut interest rates. Only 36% of survey participants believe Trump will respect the Fed’s independence, a drop from 56% in December.
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