NABE Economic Policy Survey
August 2014
NABE Panelists See Fiscal Policy Uncertainty Receding but Still a Concern
The NABE August 2014 Economic Policy Survey summarizes the responses of 257 members of the National Association for Business Economics. Conducted semiannually, this survey was taken between July 22 and August 4, 2014. This survey may be reprinted in whole or in part with credit given to NABE. View the survey results, including complete tabulations, online at www.nabe.com. This is one of three surveys conducted by NABE. The other two are the NABE Outlook Survey and the NABE Business Conditions Survey. Peter C. Evans (Center for Global Enterprise), Chair; Douglas Duncan (Fannie Mae); Douglas Williams (Jerome Levy Forecasting Center); and Mine Yücel (Federal Reserve Bank of Dallas) conducted the analysis for this report.
Executive Summary
“Respondents to the latest NABE Policy Survey express less concern than in earlier polls about fiscal policy uncertainty, but a majority still consider it an impediment to the economic recovery, ”said NABE Policy Survey Committee Chair Peter Evans, vice president at the Center for Global Enterprise. “Most panelists do not see inflation being a major concern in the coming years. The majority of NABE panelists believe that inflation will be at or near 2% in 5 years.”
“While there is no clear consensus on current fiscal policy, the share expressing approval has increased markedly to 42 percent compared to just 31 percent one year ago,” said NABE President Jack Kleinhenz, chief economist at the National Retail Federation. “Over this same period, the panel’s approval of Federal Reserve policy has edged downward.”
Inflation and monetary policy perspectives:
• Most panelists do not see inflation being a major concern in the coming years. The majority of NABE panelists believe that inflation will be at or near 2% in 5 years.
• A majority of respondents (53%) indicated they believe monetary policy is on the right track, but 39% felt that monetary policy was too stimulative.
• Nearly a third (30%) of panelists believe the Federal Reserve should stop reinvesting Treasury debt and agency-backed securities by the end of 2014, but only 7% expect the Fed to do so by then.
Positions on other economic policy matters:
• Four out of five panelists responded that immigration reform is in their top ten policy priorities, with more than a quarter saying that immigration reform is a top-three policy priority.
• While there are mixed views on how effectively the rapidly growing mobile payments industry is regulated, more than 40% agree (8% strongly agree) that the government should help expand access to mobile payments.
• On energy policy, there is very strong support among respondents both for removing restrictions on oil exports and for accelerating approval for LNG exports.
• Two-thirds of the respondents voiced concern that Eurozone policymakers have not put in place an adequate solution to the European sovereign debt crisis.
Fiscal Policy
The NABE Policy Survey panelists’ views regarding current fiscal policy have moved further toward “about right,” but the consensus opinion doesn’t place it there yet. About 42% of survey respondents said current fiscal policy is about right, up from the 37% who held this view in February and 31% in August 2013. Thirty-four percent indicated that they thought current policy is too restrictive, a 5-percentage point decline from February. The share that felt fiscal policy is too stimulative was 22%—essentially flat over the past year.
Debates about the nation’s fiscal health have led to several legislative showdowns of decreasing intensity over the last few years. The discussions have generated much public commentary by economists about what impact federal budget uncertainty may be having on economic activity. A year ago, 68% of NABE Policy Survey respondents felt that uncertainty was holding back the economic recovery. That percentage has steadily declined to 53% in the current survey, while the share who indicated such uncertainty is not an impediment has risen to 42%. That the majority of panelists still consider uncertainty as an impediment to recovery may reflect two facts: current funding for a number of federal agencies expires September 30 for lack of appropriations, and the currently suspended federal debt ceiling is due to be re-established in mid-March 2015. Asked to identify the cause of the fiscal deficit—which is at the heart of the fiscal policy debate—the panel’s views were as broadly divided as they were about the correctness of current policy.
Nearly 42% of survey respondents blamed excessive government spending, while nearly 37% identified the “output gap” as the proximate cause.1 The remaining 23% who identified a cause blamed it on insufficient revenues. The panelists were asked about the best ways to address deficit problems and their impact on GDP. Garnering the greatest support (cited by 36% of survey respondents) was the enactment of structural policies to stimulate stronger economic growth. But noteworthy is that this is significantly larger than the 20% a year ago who supported this approach. A quarter of the panel (26% of respondents) supported a combination of spending restraint and increased revenues. Seventeen percent suggested spending restraint alone—nearly half the share that held this view a year ago. Around 4% suggested raising taxes. Sixteen percent of survey participants indicated that no policy changes should be made because, at its current level, the deficit is immaterial.
The NABE Policy Survey asked the panel how policymakers should deal with future deficit increases as forecast by the Congressional Budget Office (CBO). Interestingly, the two most frequently cited responses were the opposite of the two most popular suggestions to deal with the current deficit. Thirty-four percent of panelists supported a mix of spending restraint and revenue increases to address longer-term deficit increases (down 5 percentage points from a year earlier) while 28% suggested structural changes to stimulate stronger growth (an increase of 8 percentage points from a year earlier). A larger percentage of panelists (25%) suggested spending restraint only to deal with longer-term deficits than the share of the panel that supported this same approach for dealing with the current deficit (17%).
About 7% recommended raising revenue and 5% indicated that the CBO forecasts of future deficits were either too speculative or not material. Should federal spending cuts be the policy taken, 39% of the panelists suggested targeting federal healthcare spending, while 22% would target defense spending. Another 18% suggested targeting other federal entitlements. If policymakers decide to raise revenues, 44% of the respondents suggested broadening the individual and corporate tax bases, while 22% supported a broad-based energy or carbon tax. Smaller percentages—13% and 10%— suggested a national sales or value-added tax (VAT) or increasing Social Security taxes, respectively. Finally, there was little support for policy measures that would cap the amount of outstanding federal debt. More than three-quarters of the panelists responded “no” to the question asking if Congress should cap the federal debt at its current level of roughly $17 trillion if unemployment was 6% or higher.
Monetary Policy
There was overall consensus regarding monetary policy. A majority of respondents indicated they believe monetary policy is on the right track. But the percentage of respondents who held this view has declined slightly—from 57% in the February 2014 and August 2013 surveys to 53%. Nearly four out of ten panelists (39%) felt that monetary policy was too stimulative.
The Federal Open Market Committee (FOMC) plans to end its purchases of securities by October 2014, but will continue to reinvest principal payments of Treasury debt and agency mortgage-backed securities. Although only 7% of respondents expect the Federal Reserve to stop such reinvestment by the end of 2014, 30% believe the Fed should do by then. Over half of respondents (54%) expect the Fed to stop in 2015, while nearly a quarter (23%) expect it to stop in 2016 or later. Two-thirds of survey respondents (68%) consider quantitative easing a success, similar to results in the previous survey.
The majority of respondents do not believe the FOMC will raise its target for the federal funds rate above the current 0-to-25 basis points in 2014. Forty-one percent of panelists believe the Fed will raise the target rate in the first half of 2015 while 34% believe it will be in the second half of 2015. However, a notable share of the panel would prefer the Fed raise the fed funds target earlier—nearly a third (31%) of the survey respondents would like to see the Fed raise the target rate by the end of 2014 and nearly another third (29%) would prefer the Fed to do so during the first half of 2015. Less than 10% would prefer the Fed to wait until 2016 or later to raise the federal funds target rate.
Although the unemployment rate has fallen below the target rate of 6.5%, 54% of survey respondents think a highly accommodative monetary policy remains appropriate and that the Fed should keep the fed funds target unchanged. There is greater consensus regarding the Fed’s inflation goal. Nearly 70% of panelists feel that the long-run inflation goal of 2% should be maintained. Respondents do think inflation will edge up, but 62% of them think that the rise in the personal consumption expenditures (PCE) price index will be near the Fed’s goal of 2% in five years, while 30% believe PCE inflation will be significantly above the Fed’s goal of 2%.
Immigration, Mobile Payments and Energy Export Policy
The August Policy Survey included questions about several other policy issues that could have broad economic implications. Panelists were asked how restrictions on high-skill immigration were affecting their organizations. While slightly over half answered that the restrictions have had no effect, 11% indicated that high-skill immigration restrictions are adversely impacting their companies; nearly a fifth said that restrictions are affecting their businesses somewhat. Regardless of any impact such restrictions may be having on their organizations, the bulk of panelists (80%) indicated that immigration reform is among their top ten policy priorities; more than a quarter said that immigration reform was one of their top three policy priorities. For a smaller share of the panel (15%), immigration reform is of no concern, and 6% of respondents either did not know or had no opinion.
Respondents’ views were mixed on whether there is sufficient regulatory oversight of the rapidly expanding mobile payments industry. One in five indicated that there is sufficient oversight, while over a third (37%) responded that regulation is lacking (the balance of the panel either did not know or had no opinion). Opinions also varied on whether the US government should introduce programs to expand access to mobile payments as a way to help low/moderateincome and underserved consumers enter the financial mainstream. More than 40% agreed (8% strongly agreed) that the government should help expand access to mobile payments. On the other end of the spectrum, 33% disagreed (10% strongly disagreed) that the government should expand access for the sake of underserved consumers.
A majority of survey respondents (78%) indicated that the Obama administration should ask Congress to lift the US ban on crude oil exports, while 14% of respondents do not think the request should be made. Respondents were even more unified regarding whether the current administration should accelerate the approval process for US liquefied natural gas exports to countries that are members of the World Trade Organization. Eighty-three percent of respondents said that the approval process should be accelerated, while only 9% were against accelerating the process.
European Economic Policy
European economic policy remains a concern for many NABE Policy Survey participants. There is general skepticism about whether recent policy measures will be enough to revitalize economic growth in the Eurozone. In June, the European Central Bank reduced its main refinancing rate by 10 basis points to 0.15%, cut its deposit rate to -0.10%, and announced its Targeted Long-term Refinancing Operations program that is intended to spur bank lending. Sixtytwo percent of respondents said that they did not believe these policy measures will be enough to increase Eurozone economic growth in 2015.
Likewise, two-thirds of respondents voiced concern that Eurozone policy makers have not put in place an adequate solution to the European sovereign debt crisis. Only 13% believe these measures will be sufficient to spur growth. By contrast, 66% indicated that they thought current measures are inadequate. At the same time, one in five said that they either did not know or did not have a position regarding this question.
Policy Survey Committee
Peter Evans, Center for Global Enterprise, Chair
Douglas Duncan, Fannie Mae
Douglas Williams, Jerome Levy Forecasting Center
Mine Yücel, Federal Reserve Bank of Dallas