Wall Street seems to be embracing the idea that the Federal Reserve will hike rates into restrictive territory and stay there for a long time. The markets had predicted that the Fed would cut as many as they did.
According to the September CNBC Fed Survey, the average respondents think the Fed will raise the federal funds rate by 75 basis points. The central bank is expected to keep raising the rate until it peaks in March.
The peak rate forecast is 40 basis points higher than it was in July.
The Fed's peak rate will be maintained for as little as three months and as long as two years, depending on the views of respondents.
According to the survey, the Fed has realized the seriousness of the inflation problem and has pivoted to messaging a positive real policy rate for an extended period of time
The current range of the Fed's funds rate is 2%- 2.5%.
35 people, including economists, fund managers and strategists, are concerned that the Fed will over tighten and cause a recession
Peter Boockvar, chief investment officer of Bleakley Financial, said he was worried that they were on the verge of going too far with their tightening.
Boockvar was one of the people who had urged the Fed to tighten policy very early on.
The probability of a recession in the US over the next year remained the same as in the July survey. That is less likely than a 75% chance for Europe.
In the U.S., a majority of people think the Fed will tighten too much and cause a recession, a 5-point decrease from July.
Jim Paulsen is an optimist.
The Fed has a chance at a soft landing because of the lag in the effects of its tightening. If it doesn't hike too far, that's good.
"All the Fed has to do is stand down after raising the funds rate to 3.25%, allow real GDP growth to remain positive, and take all the credit as inflation declines while real growth persists," Paulsen wrote.
Most respondents don't think the Fed will be able to hit its 2% inflation target.
The consumer price index will end the year at a 6.8% year-over-year rate, down from the current level of 8.3%, and fall further to 3.6% in the next five years, according to respondents.
The majority of people think the Fed will hit its targets.
More than 80% of respondents said they didn't change their inflation forecasts because of the inflation reduction act.
The stock market looks to be in a very difficult position.
The average outlook for the S&P 500 was marked down by respondents. The large-cap index is expected to end the year at 3,953, or 1.4% above Monday's close. The forecast is for the index to reach 4,310 by the end of the year.
Most people think markets are more reasonable than they were in the past.
Half of the people say that stock prices are too high relative to the outlook for earnings and the economy.
The majority of respondents said stock prices were too high.
The CNBC risk/reward ratio is close to the neutral zone. For the past year, it has been -9 to -14.
The U.S. economy is expected to run at a stall speed this year and next with little improvement expected for the next five years.
Two years of below trend growth is the most likely scenario.
The economy will struggle over the next 12 to 18 months, according to Mark Zandi, chief economist at Moody's.
Next year the unemployment rate is expected to rise to 4.4%. It is rare for the unemployment rate to rise outside of a recession. The US isn't in a recession at the moment, according to most economists.
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