Inflation could get in the way of Warsh's desire to cut interest rates, CNBC survey finds
Fed chair nominee Kevin Warsh may struggle to deliver the interest rate cuts President Trump desires, as persistently high oil prices and inflation constrain the Federal Reserve's ability to ease policy, according to the CNBC Fed Survey. Survey respondents expect only minimal rate cuts in 2024, with the federal funds rate projected to fall slightly to 3.5%. Inflation pressures from energy costs are expected to linger, complicating the Fed's dual mandate of controlling prices and supporting growth. For 2027, rates are forecast to decline further to 3.2%, implying less than two full cuts over the period.
- ▪High oil prices are expected to increase inflation by 0.6 percentage point in 2024 while reducing economic growth by 0.5 point.
- ▪81% of survey respondents believe rising crude prices will push up core inflation, which excludes food and energy.
- ▪Only 58% of the 26 respondents expect any rate cut in 2024, indicating limited near-term easing.
- ▪The average forecast for the federal funds rate in 2027 is 3.2%, suggesting less than two rate cuts over the next few years.
- ▪Rob Morgan of Mosaic stated that Warsh will likely be constrained in delivering Trump’s desired rate cuts due to sustained inflationary pressures.
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Efforts by Fed chair nominee Kevin Warsh to satisfy President Donald Trump's demands for lower interest rates look likely to be stymied by high oil prices and inflation, according to respondents to the latest CNBC Fed Survey.Respondents on average are not fully pricing a single rate cut this year. Just 58% of the 26 respondents see any rate cut at all. The average funds rate is forecast to decline to 3.5%, or just 0.14 percentage point below the current rate, reflecting a combination of those who forecast one cut or more and those seeing the Fed on hold. For 2027, the average funds rate is forecast at 3.2%, reflecting a bit less than two rate cuts."Fed Chair Nominee Warsh will probably be hamstrung delivering Trump the rate cuts the president wants because oil prices and inflation will remain higher than hoped for a long time," said Rob Morgan, senior vice president and market strategist, Mosaic.High oil prices are seen pushing up inflation by 0.6 percentage point this year while pushing down growth by a half point. And 81% believe crude prices are likely to drive up core inflation as well, compounding the difficulty of cutting rates for the Fed. Core excludes food and energy prices because of their volatility.
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