Fed to still cut rates this year, even as high oil prices spark an uptick in inflation: CNBC Fed Survey

• Oil prices at $88/barrel would add 0.5 percentage points to CPI and reduce GDP growth by 0.3 percentage points, with recession probability rising to 31% but remaining well below the 53% level seen after April's Liberation Day tariffs
• Headline CPI is forecast to reach 2.9% this year and 2.7% in 2027, meaning two more years of above-target inflation, while 82% of respondents believe higher oil prices will likely feed into core inflation
• Two-thirds of survey respondents express concern that troubles in private credit markets could slow growth, with 75% calling systemic risk in credit markets 'somewhat elevated,' the highest reading since the survey began tracking this metric

Summary: Fed Rate Cuts Expected Despite Oil-Driven Inflation Concerns

Key Findings

The latest CNBC Fed Survey of 32 fund managers, analysts, and economists reveals expectations for continued monetary easing despite elevated oil prices following U.S. military action against Iran. Respondents forecast an average of 1.8 rate cuts in 2025, more dovish than Fed futures markets pricing in only one cut.

Oil Price Impact

Oil prices are projected to remain around $88 per barrel over the next six months, expected to increase the Consumer Price Index by 0.5 percentage points and reduce GDP growth by 0.3%. Recession probability rose 8 points to 31%, though below the 53% seen after April's Liberation Day tariffs. The Strait of Hormuz closure timeline remains critical—44% expect reopening within one month, while 38% anticipate longer disruptions.

Economic Outlook

GDP growth forecasts declined to 2.1% from 2.4% in January, with 2027 projections at 2.2%. Unemployment is expected to hold steady around 4.5%. Headline CPI is forecast at 2.9% for this year and 2.7% for next year, indicating persistent above-target inflation. Notably, 82% of respondents believe higher oil prices will translate to elevated core inflation.

The S&P 500 is projected to finish 2025 just above 7,000 (4% gain) and reach 7,627 in 2026 (14% increase).

Additional Concerns

Two-thirds of respondents expressed concern about private credit market troubles potentially impacting growth, with 69% citing broader systemic risk concerns. 75% characterized overall credit market systemic risk as "somewhat elevated"—the highest reading since tracking began in October.

The Fed is expected to hold rates steady at 4.25-4.5% at its current meeting.