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Photo: Bloomberg.com
Market Expectations Versus Expert Preferences
A clear majority of market participants expect Kevin Hassett, current director of the National Economic Council, to become the next chair of the Federal Reserve. The December CNBC Fed Survey shows that 84 percent of respondents believe President Donald Trump will move forward with Hassett’s nomination. Despite this strong expectation, only 11 percent believe Hassett is the right choice. Survey respondents instead favor two other candidates with more conventional monetary policy backgrounds: Fed Governor Christopher Waller, supported by 47 percent of participants, and former Fed Governor Kevin Warsh at 23 percent. However, only 5 percent believe Trump is likely to consider either of these alternatives.
Concerns About Policy Direction and Independence
The hesitation surrounding Hassett stems largely from doubts about his alignment with the Federal Reserve’s dual mandate of stable prices and maximum employment. Roughly 76 percent of respondents anticipate that the next Fed chair will take a more dovish policy stance than current Chair Jerome Powell, meaning quicker rate cuts if labor conditions deteriorate and a slower response to above-target inflation. Furthermore, 51 percent believe the next chair will lean toward fulfilling the president’s preference for lower interest rates, compared to 41 percent who expect a more independent approach.
Expectations for This Week’s Fed Meeting
Experts anticipate what they describe as a “hawkish cut,” meaning a reduction in interest rates followed by an extended pause. Yet there is no consensus on whether that cut should occur. While 87 percent expect a rate reduction in December, only 45 percent believe it is justified. Forecasts suggest two dissents within the Federal Open Market Committee. Just 35 percent of respondents expect another cut in January.
Richard Bernstein, CEO of Richard Bernstein Advisors, argues that current macro conditions do not warrant easing. He points to GDP growth tracking close to 4 percent, inflation remaining above target, and broadly easy financial conditions. He also notes the continuing deglobalization of supply chains and labor markets, factors he says increase inflationary pressure. Scott Wren of Wells Fargo Investment Institute shares this view, stating that even though monetary easing is expected, a strong case exists for maintaining rates.
Economic Outlook Strengthens Despite Inflation Risks
Overall growth forecasts have been revised upward, with GDP expected to rise around 2 percent this year and edge higher in 2025. Inflation projections indicate price pressures are likely to remain above the Fed’s 2 percent goal for several years. The survey identifies persistent inflation as the top economic threat for December, rising from fourth place in the October survey. Respondents now see the potential bursting of the AI-related asset bubble as the second most pressing risk.
Diane Swonk, chief economist at KPMG, warns that inflation risks may be underestimated. She highlights the likely impact of substantial tax refunds in the first half of 2026, which she believes could inject significant consumer spending power back into the economy and keep inflation elevated.
Labor Market and Monetary Policy Tensions
While the consensus forecast calls for only a modest increase in unemployment in 2025 followed by improvement in 2027, several economists argue that the job market is weakening beneath the surface. Allen Sinai of Decision Economics asserts that the Federal Reserve is already behind the curve, emphasizing that a noticeable slowdown in labor market indicators requires a preemptive policy response. He advocates for a 50 basis point rate cut to get ahead of potential employment deterioration.
Market Sentiment and Asset Valuation Concerns
Respondents predict a 6 percent gain for the S&P 500 in 2026 and another 6 percent in 2027. However, optimism is tempered by rising concerns about equity valuations, especially in the AI sector. Ninety percent of participants describe AI-related stocks as overvalued, an increase from 79 percent in October. On average, they estimate these stocks are priced roughly 21 percent above fundamental value.
Participants also express greater worry about credit market conditions. Sixty percent view systemic risk in U.S. credit markets as “somewhat elevated,” up from 53 percent in October. Rising corporate leverage, tightening lending standards and sector-specific vulnerabilities are contributing to the more cautious sentiment.
A Divided Outlook Ahead
Overall, the December CNBC Fed Survey highlights a widening disconnect between political expectations, economic fundamentals and expert recommendations. While markets are preparing for a Hassett-led Federal Reserve, the survey results clearly show that most economists believe a different leader would be better equipped to handle inflation pressures, maintain policy independence and guide monetary strategy during an uncertain period for the U.S. economy.









