Fed Raises Rates 0.25 Points to Fight Inflation Despite Trump Pushback

A new survey of Wall Street economists shows the Federal Reserve is widely expected to raise interest rates at least twice over the next year as inflation concerns mount from elevated oil prices tied to the ongoing conflict in the Middle East. Yet prominent voices like Moody's Analytics chief economist Mark Zandi are urging caution, arguing that such moves risk a serious misstep that could damage the broader economy.

The CNBC Fed Survey of 29 economists, fund managers and strategists found that 86 percent now anticipate at least one rate increase in the coming 12 months, with 55 percent forecasting two or more. That marks a sharp shift from last month's poll, when just 46 percent expected any hikes. The change follows a hawkish speech by Fed Chair Kevin Warsh at Jackson Hole, persistent inflation readings and a surge in energy costs linked to the closure of the Strait of Hormuz.

Respondents largely believe oil prices will stay elevated for more than six months, raising fears that higher energy costs will spill into other goods and services. CPI forecasts in the survey climbed to an average near 3.5 percent for this year before easing to 2.85 percent in 2027. Roughly three-quarters of those polled see the inflation problem extending beyond energy alone.

Warsh has signaled he will support tighter policy if price pressures fail to subside, a stance that aligns with market expectations for a quarter-point increase at the Fed's upcoming meeting. The survey reflects a growing view that the central bank must act forcefully rather than wait for inflation to ease on its own.

Zandi, however, has pushed back forcefully against that consensus. In recent remarks, he warned that the odds of a serious Fed policy mistake are uncomfortably high and rising. He noted that markets are pricing in not just one hike but additional increases ahead, even as the U.S. economy continues to post steady 2 percent growth. Zandi argued that the central bank should hold off, pointing to risks that premature tightening could slow hiring and consumer spending at a time when many households already face higher costs at the pump and grocery store.

The contrast highlights deepening debate over how aggressively the Fed should respond to energy-driven inflation. Critics of quick action contend that rate hikes are blunt tools ill-suited to temporary supply shocks, potentially burdening workers and small businesses with higher borrowing costs for homes, cars and credit cards. Supporters counter that allowing inflation expectations to drift higher could require even steeper policy adjustments later.

Survey participants expressed skepticism about the Fed's ability to tame fuel-related price increases through interest rate policy alone. Several noted that energy costs are heavily influenced by geopolitical events beyond the central bank's control. With the Strait of Hormuz expected to remain disrupted for at least another month, those pressures appear likely to linger.

The Fed's next policy decision comes amid signs that inflation has not cooled as quickly as hoped earlier in the year. While Warsh has moved to adjust how the central bank communicates its plans, markets have interpreted his recent comments as opening the door to tighter policy. Zandi's intervention adds to a minority view that the economy can withstand current price pressures without immediate rate increases.

As policymakers weigh their options, the divide between survey expectations and warnings from figures like Zandi underscores the stakes for households already navigating higher living costs.