CNBC Fed Survey, August 20, 2014

CNBC Fed Survey – August 20, 2014 Page 1 of 15

FED SURVEY August 20, 2014

These survey results represent the opinions of 36 of the nation’s top money managers,

investment strategists, and professional economists.

They responded to CNBC’s invitation to participate in our online survey. Their responses were

collected on August 14-18, 2014. Participants were not required to answer every question.

Results are also shown for identical questions in earlier surveys.

This is not intended to be a scientific poll and its results should not be extrapolated beyond those

who did accept our invitation.

1. Relative to your current belief about the outlook for

monetary policy, in her speech at Jackson Hole Fed Chair

Janet Yellen will strike a:

0%

6%

63%

31%

0% 0% 0%

10%

20%

30%

40%

50%

60%

70%

Much more

hawkish tone

Somewhat

more hawkish

tone

Neutral tone Somewhat

more dovish

tone

Much more

dovish tone

Don't

know/unsure



2. Relative to your current belief about the outlook for monetary policy, do you expect the general outlook for monetary policy from research papers, media coverage, and other sources from Jackson Hole will strike a:

0%

26%

46%

26%

0%

3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Much more

hawkish tone

Somewhat

more hawkish

tone

Neutral tone Somewhat

more dovish

tone

Much more

dovish tone

Don't

know/unsure



3. The Federal Reserve should:

29% 27%

37%

19%

24%

19%

10% 11% 8%

0%

50%

59%

53%

72% 74%

2% 5%

0% 0%

3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

January 28 March 18 April 28 July 29 Aug 20

Taper faster Taper slower Taper at the same pace Don't know/unsure

Taper slower

Taper at same pace

Don't know/unsure

Taper faster



4. How would you characterize the Fed's current monetary policy?

28%

43%

17%

13%

49%

43%

6%

3%

46%

49%

3% 3%

0%

10%

20%

30%

40%

50%

60%

Too accommodative Just right Too restrictive Don't know/unsure

July 31, 2012 July 29, 2014 Aug 20



5. Relative to an economy operating at full capacity, what best describes your view of the amount of resource slack in the U.S. right now for labor?

48%

36%

4%

8%

4%

0%

34%

40%

6%

11%

9%

0% 0%

10%

20%

30%

40%

50%

60%

Considerably

more slack

now

Modestly

more slack

now

No differenceModestly less

slack now

Considerably

less slack

now

Don't

know/unsure

July 29 August 20



Relative to an economy operating at full capacity, what best describes your view of the amount of resource slack in the U.S. right now for production capacity?

12%

56%

8%

16%

4% 4%

9%

60%

14%

9% 9%

0% 0%

10%

20%

30%

40%

50%

60%

70%

Considerably

more slack

now

Modestly

more slack

now

No differenceModestly less

slack now

Considerably

less slack

now

Don't

know/unsure

July 29 August 20



6. When do you think the FOMC will first increase the fed funds rate?

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

April 28 Jun 4 Jun 29 Aug 20

Averages: April 28 survey:

July 2015

June 4 survey:

August 2015

July 29 survey:

August 2015

Aug 20 survey:

July 2015



7. Where do you expect the fed funds target rate will be on … ?

Jul 30Sep

17Oct 29

Dec

17

Jan 28

'14

Mar

18Apr 28 Jun 4 Jul 29

Aug

20

Dec 31, 2014 0.28% 0.21% 0.21% 0.20% 0.19% 0.15% 0.27% 0.17% 0.21% 0.16%

Jun 30, 2015 0.50% 0.39%

Dec 31, 2015 0.97% 0.92% 0.82% 0.70% 0.72% 0.83% 0.99% 0.68% 1.05% 0.89%

Jun 30, 2016 1.53%

Dec 30, 2016 1.99%

0.28%

0.21% 0.21% 0.20% 0.19% 0.15%

0.27%

0.17% 0.21%

0.16%

0.50%

0.39%

0.97% 0.92%

0.82%

0.70% 0.72%

0.83%

0.99%

0.68%

1.05%

0.89%

Dec 2016

1.99%

Jun 2016

1.53%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%



8. At what fed funds level WILL/SHOULD the Federal Reserve stop hiking rates in the current cycle? That is, what will/should be the terminal rate?

3.16%

3.44%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Will Should



9. When do you believe fed funds will reach its terminal rate?

0%

5%

10%

15%

20%

25%

Average:

Q4 2017



10. What is your primary area of interest?

Comments: Tony Crescenzi, PIMCO: Mrs. Yellen is now the Sandman, having taking over the duties of Sandman from Ben Bernanke in February. Save for her “six months” comment in March, which appeared to indicate the Fed might raise interest rates six months after completing its bond buying program in November, Mrs. Sandman has been masterful at keeping investors in their dream state.

Whether Janet Yellen has enough magic sand to keep investors calm – to suppress interest rate volatility and keep financial markets stable more generally – remains to be seen, however. It will become more difficult the closer unemployment and inflation move toward the Fed’s targets. Yet it won’t be that difficult, because in PIMCO’s New Neutral thesis the Fed won’t raise interest rates as much as it has historically. We believe the neutral policy rate is today 2% instead of the old 4%.

Economics

34%

Equities

14%

Fixed Income

23%

Currencies 3%

Other

26%



John Donaldson, Haverford Trust Co.: The Fed is stuck in a very difficult place. All of the cyclical factors that respond to monetary policy have improved. The secular factors such as long-term unemployment are proving to be intractable and likely not able to be solved by monetary policy tools. It is hard for monetary officials to say "this ball is in your court" to those in charge of fiscal policy.

Mike Englund, Action Economics: If the Fed was more aggressive now in right-sizing short-term Treasury yields and the fed funds rate to the rest of the yield curve so "policy control" of market rates was established earlier in the cycle there would be less need for aggressive or disruptive tightening later in the cycle. Over-accommodation now risks the need for an overly-restrictive policy later. Kevin Giddis, Raymond James/Morgan Keegan: The experts and some Fed members want to tighten soon, and the Fed Chair appears to want to wait a bit longer. Based on where the U.S. and its global counterparts economies are heading...advantage Yellen! Stuart Hoffman, PNC Financial Services Group: Lower gasoline prices, replenished savings, more jobs and income and greater confidence will lift consumer back-to-school purchases after flat July retail sales. Strong earnings, reasonable valuations and dovish talk by Chair Yellen and other Fed policymakers will underpin a rising stock market. Hugh Johnson, Hugh Johnson Advisors: There is one important and, as of now, unanswered question which may be answered in part at Jackson Hole. That is "Exit strategy.” How technically can the Federal Reserve begin to reduce the size of its balance sheet and effectively exert upward pressure on the federal funds rate when the level of excess reserves is so large? (Technically: how can this be

accomplished?) I am not confident there is a way without causing some disruption in the financial markets. Secondly, it is virtually



impossible to calculate a "terminal" federal funds rate. Underlying economic, financial market, and inflation conditions will determine the level at which the Federal Reserve needs to stop raising short-term interest rates. John Kattar, Ardent Asset Advisors: Markets are behaving as

expected at this inflection point in monetary policy...lots of crosscurrents and conflicting signals. QE is ending. But I expect Jackson Hole to hammer home the point that, despite improvement, labor markets are still not where the Fed would like them to be, and rates will remain on hold for an extended period. Alan Kral, Trevor Stewart Burton & Jacobsen: Politics still dominates. Subodh Kumar, Subodh Kumar & Associates: It is popular, not least in central banks, to talk up a "new era." Still, taking away the "punch bowl" is as important as ever and, due to imperfect knowledge, needs grit as has always been the case. Guy LeBas, Janney Montgomery Scott: If the recent evolution of inflation expectations in the Eurozone are any evidence, there remains significant risk to tightening monetary policy. John Lonski, Moody's: The muted response by consumer spending and home sales to recent improvements in the labor market is striking. If home sales do not firm soon enough, home prices are likely to soften. Supposedly, median sales price of homes sold in northern New Jersey dipped by -0.1% yearly in Q2-2014, while home prices in Westchester County rose by merely 0.8% on a comparable basis. (See article by Josh Barbanel in WSJ, 8/12/2014, p. A15).

Drew Matus, UBS Investment Research: The exit from QE/move to tighten will be messy and, hence, will increase volatility.



Ward McCarthy, Jefferies: The Fed will not raise rates until inflation forces policymakers to do so. Consequently, lift-off is likely to be later than is currently anticipated by the market but be more rapid once it is underway than is now anticipated. Rob Morgan, Fulcrum Securities: The economy has seen 6

straight job reports over 200k (first time since 1997) and job openings reported this week were the highest since 2001. The job market seems to be hitting the proverbial 'virtuous' cycle that will allow the Fed to raise rates sooner than the market expects. James Paulsen, Wells Capital Management: What worries me the most about current Fed policy is how much the current fed funds rate is "below" the current rate of core consumer inflation. Since 1960, there has been only one time (in the late-1976) when the funds rate was significantly below the rate of core inflation when the Fed began tightening. Then, it was only about 1% below the inflation rate and once the Fed began tightening they ultimately had to raise the rate from about 5% to 20%! All others times, the funds rate was either equal to or above the rate of core inflation when the Fed first began tightening. By comparison, today the core rate of inflation at 1.9% is almost 2% “above” the current effective funds rate.....wow! When they do finally begin raising the funds rate, they will need to add 200 basis points just to reach the point they generally have started tightening cycles in the past. Lynn Reaser, Point Loma Nazarene University: The economy appears to gaining momentum, but we have been fooled before. Confidence is vital and developments in Ukraine and the Middle East cannot be ignored. John Roberts, Hilliard Lyons: Signs of revenue growth in the Q2 numbers make us a little more sanguine on the equity markets,

although valuations still create some concern, especially as markets begin to anticipate a rise in rates. As a result, we continue to



suggest that investors lean defensive on equity holdings. John Ryding, RDQ Economics: The question about the terminal fund rate needs a when as well as a what. A stitch in time saves nine and the sooner the Fed begins to hike, the lower the terminal funds rate will be. It is likely that the Fed will have to overshoot the

long-run funds rate and then ultimately ease policy. Diane Swonk, Mesirow Financial: Hawks hoping to influence policy before they lose their voting rights on the FOMC have little time to express their views. This sets the stage for an amplified debate on when to raise rates between Jackson Hole and the end of the year. Next year's voting members of the FOMC, however, are more closely aligned with Yellen. This will matter more than dissents this year when it comes to the timing of rate hikes Peter Tanous, Lynx Investment Advisory: Inflation is now bubbling up in food prices, real estate, and some commodities. Demand for U.S. bonds continues to be fueled by political concerns and investors seeking safety. "Take my money...please! No interest necessary...just keep it safe." Scott Wren, Wells Fargo Advisors: The Fed is going to move very slowly. The Street's expectations for economic growth were way too high coming into the year. (Why is a mystery to me). This modest growth/modest inflation environment is unlikely to change any time soon. Some are focused on wage growth but I do not look for average hourly earnings to move much from the approximate 2.0% year-over-year pace we have seen for some time.

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CNBC Fed Survey, August 20, 2014