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Slower economic growth is likely ahead with risk of a recession rising, according to the CNBC Fed Survey

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Federal Reserve Chair Jerome Powell testifies before the Senate Banking Committee in the Hart Senate Office Building on Capitol Hill on February 11, 2025 in Washington, DC. 

Chip Somodevilla | Getty Images News | Getty Images

Respondents to the March CNBC Fed Survey have raised the risk of recession to the highest level in six months, cut their growth forecast for 2025 and raised their inflation outlook.

Much of the change appears to stem from concern over fiscal policies from the Trump administration, especially tariffs, which are now seen by them as the top threat to the US economy, replacing inflation. The outlook for the S&P 500 declined for the first time since September.

The 32 survey respondents, who include fund managers, strategists and analysts, raised the probability of recession to 36% from 23% in January. The January number had dropped to a three-year low and looked to have reflected initial optimism following the election of President Trump.  But like many consumer and business surveys, the recession probability now shows considerable concern about the outlook.

“We’ve had an abundance of discussions with investors who are increasingly concerned the Trump agenda has gone off the rails due to trade policy,” said Barry Knapp of Ironsides Macroeconomics. “Consequently, the economic risks of something more insidious than a soft patch are growing.”

“The degree of policy volatility is unprecedented,” said John Donaldson, director of fixed income at Haverford Trust.

The average GDP forecast for 2025 declined to 1.7% from 2.4%, a sharp markdown that ended consecutive increases in the three prior surveys dating back to September. GDP is forecast to bounced back to 2.1% in 2026, in line with prior forecasts.

“The risks to consumers’ spending are skewed to the downside,” said Neil Dutta, head of economic research at Renaissance Macro Research. “Alongside a frozen housing market and less spending across state and local governments, there is meaningful downside to current estimates of 2025 GDP.”

Fed rate cut outlook

Most continue to believe the Fed will cut rates at least twice and won’t hike rates, even if faced with persistently higher prices and weaker growth. Three-quarters forecast two or more quarter-point cuts this year. Part of the reason is that two-thirds believe that tariffs will result in one-time price hikes rather than a broader outbreak of inflation. But the policy uncertainty has created a wider range of views on the Fed than normal with 19% believing the Fed won’t cut at all.

Still, higher tariffs and weaker growth are a dilemma for the Fed.

“Powell is really stuck here because of the tariff overhang,” said Peter Boockvar, chief investment officer, Bleakley Financial Group. “If he gets more worried about growth because of them and cuts rates as unemployment rises but then Trump removes all the tariffs, he’s jumped the gun.”

More than 70% of respondents believe tariffs are bad for inflation, jobs and growth. 34% say tariffs will decrease US manufacturing with 22% saying they will result in no change. Thirty-seven percent of respondents believe tariffs will end up in greater manufacturing output. More than 70% believe the DOGE effort to reduce government employment is bad for growth and jobs but will be modestly deflationary.

“A global trade war, haphazard DOGE cuts to government jobs and funding, aggressive immigrant deportations, and dysfunction in DC threaten to push what was an exceptionally performing economy into recession,” said Mark Zandi, chief economist, Moody’s Analytics.

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Finance

Retail investors ditch buy-the-dip mentality during the market correction

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Spencer Platt | Getty Images

Individual investors, whose assets are more tied to the stock market than ever, have abandoned their tried-and-true dip-buying mentality as the S&P 500 recently fell into a painful, 10% correction.

Retail outflows from U.S. equities rose to about $4 billion over the past two weeks as tariff chaos and mounting economic concerns caused a three-week pullback in the S&P 500, according to data from Barclays. During March’s sell-off, 401(k) holders have been aggressively trading their investments, to the tune of four times the average level, according to Alight Solutions’ data going back to the late 1990s.

“If people were trying to buy the dip and get their stocks on sale, maybe you would see people actually buying large-cap equities. But instead we see people selling from large cap-equities,” said Rob Austin, director of research at Alight Solutions. “So this does appear to be a bit of a reactionary trading activity.”

The increased selling came as American households are more sensitive than ever to the turbulence in the stock market. U.S. household ownership of equities has reached a record level, amounting to nearly half of their financial assets, according to Federal Reserve data.

Dip-buying had served investors well over the past two years as Main Street rode the artificial intelligence-inspired bull market to record highs. At one point, the S&P 500 went more than 370 days without even a 2.1% sell-off, the longest such stretch since the global financial crisis of 2008-2009.

Nut lately, markets began to sour as President Donald Trump’s aggressive tariffs and sudden changes in policy stirred up volatility, stoking fears of dampened consumer spending, slower economic growth, weaker profits and maybe even a recession. The S&P 500 officially entered a correction late last week, and is now sitting some 8.7% below its February all-time high.

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Still, retail traders are far from throwing in the towel. For example, the net debit of margin accounts, a “popular proxy for retail investors’ sentiment,” continues to stay elevated, according to Barclays data.

“There is plenty of room for retail investors to further disengage from the equity market,” analysts led by Venu Krishna, Barclays head of U.S. equity strategy, said in a note Tuesday to clients. “We are of the view that retail investors have in no way capitulated.”

Barclays’ proprietary euphoria indicator shows sentiment has been brought down to levels similar to where it was around the time of the U.S. presidential election in November, but is still high by historic standards.

“It’s not like everybody is going out there saying the sky is falling. Most people, it looks like, are not making any sort of reactions,” Austin said.

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Wall Street analysts defend Capital One stock after Monday's selloff. Here's where we stand

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KBW maintained its buy-equivalent rating on Capital One, calling Monday’s market reaction to the report “overblown.”

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