Federal Reserve policymakers will go into hibernation for as much as six months, holding interest rates unchanged until at least the summer, according to respondents of the December CNBC Fed Survey.
But those averages hide a more robust debate about the outlook for growth, the trade wars and Fed policy in the next year.
"The risks to the outlook for economic growth and inflation are still tilted to the downside, and the door to future rate cuts remains open," Kathy Bostjancic, chief U.S. financial market economist at Oxford Economics, wrote in response to the survey.
The Fed begins a two-day policy meeting on Tuesday.
But Mike Englund, chief economist at Action Economics, said, "The U.S. economy is ending 2019 with faster GDP, productivity, and hours-worked growth, and lower inflation, than was expected at the start of the year. The same is likely to be true in 2020. Market narratives have underestimated the runway length for this expansion."
Forecasts for growth in gross domestic product in 2020 range from a low of negative 0.5% to a high of 3%, or a percentage point higher than the current level.
Less than half of the 43 respondents, who include fund managers, strategists and economists, forecast a cut next year and just 5% expect a hike. Of those who see a cut coming, the majority don't predict it will happen until June.
"The Fed will be on hold for longer than the market is projecting," wrote John Donaldson, director of fixed income at Haverford Trust. "Even a one-third chance of a cut next June is way overstated."
Respondents say a key to the outlook is what happens with the U.S.-China trade war. A strong 61% majority believe the two countries will sign a limited trade agreement by next year and 57% say the U.S. will not enact additional tariffs on China this year or next. A similar percentage expect tariffs to be rolled back by both sides in the next year. The next deadline for additional U.S. tariffs is Sunday.
"Unfortunately, Federal Reserve policy is held captive to trade negotiations. In 2020, the Fed will surf the wave of news coming from Washington and Beijing," writes Chad Morganlander, portfolio manager at Stifel Nicolaus.
On a brighter note, respondents say holiday spending this year should be somewhat above average, with a majority of respondents expecting consumer spending to either remain strong or even strengthen.
The chance of recession in the next year fell to 26% from 34% in the prior survey and is at the lowest level since June. GDP, meanwhile, is forecast to remain at 2% over the next two years with protectionism and global economic weakness the primary threats to expansion.
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