Waller's debut as Fed Chair: No rate cuts, no rate hikes, but ready to "say less"?

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Kevin Walsh’s first FOMC meeting as Fed Chair is highly anticipated, but market expectations for his initial actions are extremely limited.

In the early hours of Thursday Beijing time, the Federal Reserve will announce its latest interest rate decision. According to a CNBC Fed survey, 32 economists, fund managers, and strategists interviewed generally believe the Fed will not adjust rates at this meeting, nor at any meeting before 2027.

Meanwhile, 88% of respondents expect the Fed to remove the phrase “easing bias” from its statement this week—wording that had previously suggested the next move would be a rate cut. This shift in expectations means bets on rate cuts are officially leaving the near-term radar.

High inflation is the core reason for holding rates steady. Respondents pointed out that the Trump administration's tariff policies and the U.S.-Iran conflict have pushed up inflation, leaving almost no room for rate cuts. Meanwhile, Walsh himself is broadly viewed as dovish, but he is taking over a committee with a distinctly more hawkish stance; some officials have publicly said that if inflation remains above target, rate hikes should remain an option.

Rate expectations: No hope for cuts, hikes not the base case

Survey results show respondents' forecasts for the federal funds rate essentially remain at the current 3.62% level until 2027. Although high oil prices contribute to inflation pressure, respondents do not believe this will trigger rate hikes.

Gregory Daco, chief economist at EY, said: "Although Walsh is broadly seen as dovish, he will take over a committee with an increasingly hawkish stance. Multiple policymakers have recently advocated that if inflation stays above target, rate hikes should remain an option, and energy-driven inflation pressures only reinforce this tendency."

Walsh himself has previously said rates could be lower, but faced with the recent rebound in inflation and stronger jobs data, he has yet to clarify whether he has shifted his outlook. After the survey was completed, news of a potential U.S.-Iran agreement emerged, which might give Walsh more room to cut rates earlier than expected, but for now, this remains uncertain.

John Ryding, chief economic adviser at Brean Capital, takes a more hawkish stance, saying: "The Federal Open Market Committee should raise rates to curb rising inflation expectations and bring policy closer to a neutral stance." Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, also noted that short-term labor market fragility has passed, and the central bank's dual mandate is clearly tilted toward inflation.

Economic resilience: Recession probability down, growth outlook raised

Despite a tight rate outlook, improvement in economic fundamentals provides Walsh a relatively favorable environment for assuming office.

Respondents raised their U.S. GDP growth forecast for 2026 to 2.2%, up 0.25 percentage points from the last survey; the 2027 forecast is 2.3%, both recovering most of the prior downgrades triggered by U.S.-Iran tensions. Recession probability has fallen from 33% in April to 25%, with unemployment expected to stay close to the current 4.3% level this year and next.

Economist Hugh Johnson wrote: "Improving economic and employment conditions, and moderate stock price increases are common features of this phase of the stock market–economy–interest rate cycle. Early warning signals for the end-of-bull-market recession have not yet appeared."

Several respondents believe a healthy job market means the Fed should focus on its inflation target—which hasn't been met for most of the past six years.

Communication reform: Market supports ‘talk less’ but press conferences remain uncertain

Beyond monetary policy, Walsh’s drive for reforming Fed communications received broad backing from respondents.

The survey shows 59% of respondents think Fed officials talk too much, only 38% think the frequency is appropriate, closely matching Walsh’s stance of advocating fewer public statements. However, 59% of respondents expect Walsh to hold press conferences after each meeting—contrasting his refusal to commit to this during his April Senate confirmation hearing.

On the “dot plot” issue, 53% of respondents think the tool should be scrapped entirely. Multiple reform proposals, such as publishing the plot a few days after meetings or linking dots to specific officials’ economic forecasts, were also rejected by most respondents.

Risk map: AI bubble and inflation ranked top threats

The survey lists inflation as the top risk to growth, closely followed by an AI bubble burst. 84% of respondents think AI stock valuations are high, down 6 percentage points from last December, with the average overvaluation estimated at about 21%. In addition, 69% believe overall stock market valuations are high, although this is the lowest proportion in the past year.

Drew Matus, chief market strategist at MetLife Investment Management, warned: "The gap between AI reality and expectations is a risk for the stock market and for consumers relying on the stock market wealth effect. The wealth effect is likely to be a channel for the next economic downturn."

Respondents are overall cautious on equities, expecting the S&P 500 to approach 8,000 points by 2027, up about 5.5% from current levels.

By contrast, concerns over credit market risks have eased. Currently, only 53% of respondents think systemic risk in credit markets is “rising,” down from 75% in March, while another 3% think risk is “rising sharply.”

John Donaldson, director of fixed income at Haverford Trust Co., said: "Despite some pessimistic forecasts, we do not see widespread threats to the credit market. Any weakness is limited to CCC and CC rated credits, and credit spreads in the financial sector show no sign of stress."

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