"Never before has the Fed initiated a series of rate hikes amid a high-yield spread above 600 bp, a rising default rate, flat to lower profits, sluggish business sales and severe industrial commodity price deflation," said John Lonski, chief economist at Moody's. Fed Chair Janet Yellen is expected to explain the reason for the central bank's decision on Wednesday.
On the plus side, the negative effects of rate hikes are not viewed as being extreme. On a scale of -5 to 5, the overall economic effect average is just -0.2. Bond prices are seen taking the worst of it, with an average -1.2 and housing is next with -0.7. Consumer spending is actually seen benefiting slightly.
"Six years into this economic cycle, ZIRP (zero interest rate policy) is now penalizing savers more than it is rewarding borrowers," said John Augustine, chief investment officer of Huntington National Bank.
Overall, 38 percent of respondents think the process of rate normalization will end badly for the U.S. economy, 44 percent see it as neutral and 13 percent believe it ends well.
While respondents on average see three rate hikes in 2016, they are actually quite divided: a third expects just two, a third expects as many as four and 21 percent look for three. About 60 percent see the next hike after December coming in March. The funds rate is seen hitting just 0.9 percent next year, 1.61 percent in 2017 en route to a terminal rate of 2.6 percent in early 2018, which is lower than the prior survey.
On average, respondents also see the Fed allowing its balance sheet to begin declining at the end of next year.
"One-third of active investors have never seen a rate hike and think it is the end of the world," writes Art Hogan, director of equity research of Wunderlich Securities. "It is not."