US recession risk drops as inflation expectations remain high: WSJ survey

A recent survey by The Wall Street Journal indicates a reduced likelihood of a U.S. recession, alongside expectations of prolonged inflation. Conducted from July 3 to 8, the survey reflects a consensus among economists that the probability of recession has dropped to 33%, down from 45% in April. However, inflation expectations remain elevated, with the Consumer Price Index (CPI) projected at 3.04% for December 2025 and 2.58% for December 2026, remaining above the Federal Reserve’s 2% target. Current market pricing appears to reflect these findings, suggesting diminished odds of a Federal Reserve interest rate cut by September 2026.

The survey’s findings have influenced market expectations regarding the Federal Reserve’s monetary policy. In particular, the probability of a rate cut by the September 2026 meeting has decreased to 3.4% from 5% just 24 hours ago. This adjustment suggests that market participants view the persistent inflation expectations as a factor that could deter the Fed from easing monetary policy in the near term. The survey’s results appear consistent with the Fed maintaining a cautious approach, balancing the need to address inflation with the overall economic outlook.

The current economic climate, characterized by robust labor data and tempered trade policy concerns, supports the view of a lower recession risk. However, the ongoing high inflation expectations underscore challenges for the Fed in achieving its inflation targets, influencing market perceptions and expectations around potential monetary policy actions.

Key Takeaways

• The WSJ survey suggests a reduced likelihood of a U.S. recession, with probabilities dropping from 45% in April to 33% in July.
• Inflation expectations remain elevated, consistent with market pricing that anticipates a cautious Federal Reserve stance on rate cuts.
• Current market pricing reflects decreased odds of a Fed rate cut by September 2026, now at 3.4% YES, down from 5% previously.

What to Watch

Upcoming economic indicators, including labor market data and inflation reports, could influence the Federal Reserve’s policy direction. Any shifts in the Fed’s communication, particularly regarding inflation risks and economic growth, may lead to adjustments in market expectations for interest rate cuts. Key actors such as Jerome Powell and developments from the Federal Open Market Committee (FOMC) meetings will be pivotal in shaping future monetary policy and market sentiment.

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Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.