"The current pace of improvement in labor markets and subdued inflation suggest the Fed should be raising rates by late this year," said John Kattar of Ardent Asset Advisors.
Economist Bob Brusca said: "The Fed is lagging assuming inflation pressures will drop. It seems to be getting behind the inflation eight ball."
Hugh Johnson of Hugh Johnson Advisors disagrees. "If an (inflation) acceleration occurs, it is quite manageable" by having the Fed raise interest on excess reserves or execute reverse repos.
Respondents added a quarter point to their outlook for the Fed funds rate in 2015, which is now seen rising to 1 percent.
The first rate hike is seen coming in August 2015.
The market no longer has any doubt about the outlook for tapering this year. The balance sheet is expected to rise by $480 billion in 2014, which would be in line with the Fed reducing its asset purchases by $10 billion a month until the October meeting when it is expected to end quantitative easing with a $15 billion taper.
Participants have also changed their view of the balance sheet in 2015 after Fed suggestions it won't sell assets until rates rise, at the earliest.
While the April Fed Survey showed an average expected decline of $146 billion to the Fed's $4.3 trillion balance sheet, the July survey shows that no balance sheet decline is expected in 2015.
The economic growth outlook has taken a hit after the sharp decline recorded during the first quarter. Year-over-year GDP growth is now expected to be just 1.9 percent this year, down from April's forecast of 2.3 percent.
The 2015 growth outlook is stronger, but not as optimistic as it was, falling to 2.75 percent from 3 percent in April.
The chance of a U.S. recession in the next year remains muted with just a 16 percent probability.
Conflicts in Ukraine and the Middle East are seen having only a minimal impact on the U.S. economy and pose little risk for wider global financial instability.
Survey respondents continue to believe the biggest threat to the U.S. economy remains tax and regulatory policies.