U.S. stocks wobbled as yields surged, while the Federal Reserve prepared to decide on rates Wednesday at the end of its two-day meeting. The market’s nerves stayed contained, but the machinery of monetary power kept grinding toward another round of pressure on everyone below it.
August U.S. job growth accelerated, leisure and hospitality employment rebounded after two straight monthly declines, and U.S. economic activity remained resilient. Price pressures were tied to the Iran war. That’s the backdrop the Fed and its orbit are using to justify more tightening, even as the costs of those decisions land far from the conference rooms where they’re made.
Who Gets Squeezed
Markets now see the Federal Reserve hiking at least two times over the next year, according to CNBC's Fed survey. A majority of respondents forecast at least two rate hikes over the next one year, and a third predicted three or more. That marked a sharp change from last month, when just 46% expected a hike ahead. The share expecting more than a single hike rose to 55%, and 86% now expect at least one hike.
Higher oil drove much of that shift, the survey said, but roughly three-quarters of respondents said the inflation problem is broader than energy prices alone. Neil Dutta, head of economic research at Renaissance Macro Research, said, "There is nothing in the data that suggests inflation will return to target 'soon,'" and quoted Fed Governor Christopher Waller as saying, "Sternly staring at inflation until it melts before our withering gaze is not an option."
That’s the language of the apparatus: stern, distant, and ready to keep disciplining the economy while ordinary people absorb the fallout. The survey’s numbers show the same thing in cleaner form. More hikes. More pressure. Same hierarchy.
Kathy Bostjancic, chief U.S. economist at Nationwide, wrote, "The renewed march higher in oil, gasoline, and diesel prices adds to concerns higher energy prices could spill over to other goods and services and inflation expectations." Douglas Gordon, senior portfolio manager at Russell Investments, said, "The FOMC faces a challenge in showing institutional credibility vis-a-vis the inflation piece of its mandate relative to its limited ability to impact supply-driven inflation using its rate setting tool."
What the Top Says
The Fed will decide on rates Wednesday, and the last Federal Open Market Committee meeting was in July. The survey shows the central bank’s authority still commands attention even when its tools can’t touch the root causes it claims to manage. Supply-driven inflation, war-linked price shocks, and energy costs keep moving, while the Fed reaches for the same lever.
Despite the shift toward forecasts for multiple Fed rate hikes, the growth outlook has not changed much. Recession concerns remain unchanged, with an average 29% probability estimated over the next 12 months, just somewhat above normal. Gross domestic product is still seen at around 2.25% this year and next, up from 2.1% in 2025, and the unemployment rate outlook remains around 4.25%. Forecasts for stocks remain buoyant, with the S&P 500 seen maintaining its current level through year-end and rising 8% to 8,274 next year.
Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, wrote, "Economic conditions in the U.S. are incompatible with the Fed's policy rate. Something has to give — either inflation needs to fall or the Fed has to hike — or the long end of the U.S. yield curve will continue to sell off."
That’s the trap in plain sight. If inflation doesn’t fall, the Fed hikes. If the Fed doesn’t hike, markets keep selling off. Either way, the people who don’t sit on the policy committees pay the price.
The Independence Routine
Views on the communications and independence of Fed Chairman Kevin Warsh were largely positive. Fifty-nine percent of respondents said he has provided enough information on his economic and monetary policy views. Sixty-nine percent said the administration's push for lower rates will have no effect on the outcome of this month's meeting, and 66% said his conduct of monetary policy is very or mostly independent, though that was a 9-point decline from the prior survey.
Just 31% of respondents now said the Fed "talks too much," compared with 68% in July. While 69% said the Fed should not be regularly providing forward guidance, 59% said it should regularly offer its reaction function, or how it expects policy to develop relative to incoming data. Warsh was seen as by far offering the most important information about the outlook and policy, followed by Fed Governor Waller and New York Fed President John Williams. Most Fed bank presidents and other Fed governors were far behind.
Continued high inflation, the Iran war and high oil prices were the top three risks to the expansion. Sixty-one percent said there is some market risk that could come from ongoing legal battles from the midterm elections. A 46% plurality saw the Democrats gaining control of the House while Republicans retain control of the Senate, and 29% predicted the Democrats winning full control of Congress.
The electoral theater sits in the background, but the real power remains where it always was: in the hands of institutions that can move rates, shape expectations, and call it independence while everyone else lives with the consequences.