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Rate hike now seen in September: CNBC Fed survey

Wall Street sharply pushed backed its outlook for the first interest rate hike by the Federal Reserve by two months, according to the January CNBC Fed Survey. The survey also found lowered expectations for the level of the Fed's benchmark interest rate.

The first hike is now seen in September, versus July in the prior survey. The Fed Funds rate is now forecast at 73 basis points, down 10 bps from the December survey. The 33 respondents now see a Fed Funds rate of 1.75 percent in December 2016, down almost 40 bps from that forecast in September of this year.

Read MoreGold rises on soft dollar ahead of Fed rate meeting

"The FOMC is in a terrible spot here," John Donaldson of Haverford Trust wrote in response to the survey. "They need to begin to normalize rates so they have the full range of tools available if/when they need them in the next cycle. The markets seem to think that even adjusting policy rates to 1% is equivalent to an economy-choking tightening."

While the survey respondents—top money managers, investment strategists and economists—pushed back their outlook for Fed tightening, they're maintaining a relatively upbeat view of U.S. economic growth. In 2015 gross domestic product is seen rising 2.8 percent from 2014, and accelerating to 3 percent in 2016. That's down from the month's survey by 8 basis point for 2015 and 3 basis points for 2016.

"Despite all the cross-currents and heightened volatility in global financial and commodity markets, U.S. economic growth prospects remain strong," said Mark Zandi of Moody's Analytics.

The probability of a recession in the next 12 months—just 13 percent—dropped to the lowest in the 3½ years the question has been asked. It's been as high as 36 percent.

Read MoreDow falls nearly 400 points on earnings, durable goods

Some economists believe the better economic numbers will lead to earlier Fed rate hikes than the market currently believe. John Ryding of RDQ Economics said "markets are underestimating the degree to which falling unemployment will push the Fed to hiking rates and overestimating the influence of factors such as events in the Euro area." He believes the Fed will hike rates in May.

Looking across the Atlantic, nearly three-quarters of respondents said the European Central Bank's recent announcement of a 60 billion euro monthly quantitative easing program was "more aggressive" than they originally forecast. Views about the effects of QE in Europe were largely upbeat with 94 percent saying it will lead to higher European stock prices and nearly 70 percent believing it will boost U.S. equity values. About two-thirds of respondents say it will increase European growth and inflation.

Read MoreGundlach: Fed should hold line, ECB QE will fail

"There is much more longer-term upside ahead from Eurozone QE. The bull market in stocks is not over," said David Kotok of Cumberland Advisors.

And economist Allen Sinai added, "The best is yet to come in global stock markets. The ECB action was absolutely brilliant monetary policymaking."

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