Respondents ratcheted up their outlook for the Fed Funds rate in each of the next three years, with rates seen hitting 1.26 percent next year, 2.1 percent in 2018 and 2.7 percent in 2019. The terminal rate, or where the Fed is expected to stop hiking, rose to 2.9 percent from 2.4 percent in the previous survey, the sharpest hike recorded since the question was first asked in August 2014. But the Fed is not seen ending its rate hikes until the second quarter of 2019, one quarter later than forecast in the previous survey.
"One of the greatest risks is that the Fed may try to get ahead of expected fiscal policy changes and tighten too much too soon," wrote Mark Vitner, senior economist of Wells Fargo. "The chances of making a policy mistake go up whenever you start making major policy changes."
Respondents see much more modest stock gains over the next couple years than the market seems to be building in, with just a 4 percent gain predicted in the S&P 500 next year from the current level, and a 9 percent gain forecast for 2019. Yields on the 10-year Treasury are seen rising to 2.90 percent by the end of 2017, 65 basis points higher than in November, and to 3.44 percent for 2018, the first time the question has been asked for that year.
More than 80 percent say the market's recent gains are driven by expectations of policy changes from the new administration rather than economic fundamentals. And more than half of respondents say the market's expectations for those policy changes under Trump are too optimistic.
"A lot of assumptions are being made on the effect Trump has on the economy, but for my taste there is too much uncertainty, seeing as how he has not yet been sworn in," wrote Lou Brien, an analyst at DRW Trading Group.
Respondents gave Trump's economic policies generally positive marks, with 88 percent saying they will increase growth at least somewhat and 68 percent saying they will increase jobs. But 93 percent say those policies are likely to increase inflation and 94 percent say they will increase the deficit, with more than half of those saying they will increase deficits significantly.
"Starting in February, when Trump actually has to write down what his policies are, reality is likely to set in as they cannot be as good for growth as the markets currently think," said Joel Naroff of Naroff Economic Advisors.
On specific policies, cuts to business taxes and regulations got the highest marks, with somewhat less support from the group for individual tax cuts. Trump's trade policies received deeply negative grades.