A month of worrisome headlines—from gathering weakness in Europe to the spread of Ebola to U.S. shores—has markets believing in a more dovish Federal Reserve, according to the latest CNBC Fed Survey.
As the Fed begins its two-day meeting Tuesday, the survey of 39 money managers, economists and advisors shows market expectations have been pushed out for the first Fed's rate hike and how quickly rates will rise. Respondents now forecast, on average, the first rate hike in July 2015, a month later than the September survey. Instead of reaching 0.98 basis points, the average respondent now sees the Fed hiking to 0.89 basis points by the end of next year.
"The global economy slowing down (particularly Europe along with their sovereign debt issues) … is the biggest risk to financial markets,'' Scott Wren of Wells Fargo Advisors wrote in response to the survey. "The biggest potential surprise for 2015 is that the Fed does not hike the target rate all year.''
Others agreed with Wren on the possibility that the Fed could be even more dovish than they currently believe. Asked about the biggest risk to their Fed forecast in 2015, 64 percent said it's that the Fed is more dovish than they expect, up from 53 percent in the September.
Respondents also see the Fed taking longer to increase rates. The average end point of the current cycle is now seen as a 3.3 percent funds rate. But the Fed is now not expected to hit that level until the fourth quarter of 2017, a quarter later than the prior survey.
"Recent volatility has been a useful reminder that the path toward normalization of monetary policy will be anything but a straight line," said John Donaldson of Haverford Trust Co.