Business Economists Think Fed Policy on Right Track

WASHINGTON – A slight majority, 53%, of the economists employed by large corporations and national trade associations think the Federal Open Markets Committee is on the right track while nearly two in five, 39%, think Fed policy is “too stimulative,” says a report from the National Association for Business Economics released today.

A survey of 257 members of the National Association for Business Economics finds they are less uncertain about the direction of the health of the economy than they were six months ago and that they don’t see inflation as a threat any time in the next five years. They project the rate will hold at or near 2% over that period.

Four of five surveyed ranked immigration reform as one of the top-10 priorities and there was no consensus on the need for greater regulation of the use of mobile devices -- iPads smartphones, tablets and PDAs (personal digit assistants) -- to make payments to merchants and financial institutions.

Even so, two in five believe the government should expand access to mobile payments.

The economic policy survey by NABE of its members is conducted semiannually; NABE members were polled between July 22 and Aug. 4.

On the issue of fiscal policy -- government spending and collection of revenues -- 42% say it’s “about right,” 34% “too restrictive” and 22% “too stimulative.” (Two percent offered no opinion.)

Asked to identify the cause(s) of the federal deficit, 42% blamed excessive federal spending, 37% said, “the output gap,” while 23% said “insufficient revenues.” But only 4% advocated raising taxes as a solution to insufficient revenues.

(The output gap is the difference between current economic output and what the economy is capable of producing. Were the economy achieving its potential, which assumes full employment, the taxes resulting would reduce or close the deficit.)

A quarter of the panel, 26%, recommend a mixture of reduced federal spending and increased revenues.

Garnering the greatest support was congressional “enactment of structural policies to stimulate stronger economic growth.” Thirty-six percent took this position compared to 20% a year ago.

Of those advocating a reduction in federal spending, 39% would target health care, 22% defense and 18% would cut other entitlements.

Should Congress decide to raise revenues, 44% suggested the representatives and senators raise the individual and corporate tax bases, 22% support a broad-based energy or carbon tax, while 13% and 10% respectively suggested a national sales or value-added tax (VAT) or increasing Social Security taxes.

There was almost no support for capping the national debt. Congressional refusal to raise the limit on the national debt caused the government to shut down last October.

On monetary policy, set by the Federal Reserve Bank, 53% of the panelists said it’s “on the right track,” down from 57% last February.

The Federal Open Markets Committee has said it intends to end its purchases of securities this October but continue to reinvest principal payments of Treasury debt and Freddie Mac and Fannie Mae securities. More than two-thirds, 68%, consider the qualitative easing, to be a success.

The panel expects the Fed to gradually raise the Fed funds or interest rate gradually. Thirty-one percent would like to see the Fed begin doing so by the end of this year; another 29% would like to see it happen the first half of next year. Less than 10% would like to see Fed wait until 2016.

Although the unemployment rate has fallen below the target of 6.5%, more than half the panelists think “a high accommodative monetary policy remains appropriate and that the Fed should keep the fed funds target unchanged.”

On whether Congress should lift the ban on exports of crude oil, 78% favor such a move. An even high percentage think the exports of liquid natural gas should be allowed to countries that are members of the World Trade Organization.

SOURCE: National Association for Business Economics.

Published by The Business Journal, Youngstown, Ohio.
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