NABE Policy Survey
Economists Align on Monetary Policy but not on Fiscal Issues
The NABE February 2014 Economic Policy Survey summarizes the responses of 230 members of the National Association for Business Economics. Conducted semiannually, this survey was taken between January 30 and February 6. 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 Industry Survey. Jay Bryson (Wells Fargo Securities), Chair; Douglas Duncan (Fannie Mae); Douglas Williams (Jerome Levy Forecasting Center); and Mine Yucel (Federal Reserve Bank of Dallas) conducted the analysis for this report.
“Respondents to the most recent NABE Economic Policy Survey generally agree about monetary policy, but there is no clear consensus about most fiscal issues,” said NABE Policy Survey Committee Chair Jay Bryson, Global Economist at Wells Fargo Securities. “A majority of the NABE Policy Survey panel characterizes monetary policy as ‘about right’ at present, and most survey respondents believe that quantitative easing has been ‘a success.’ Only a small percentage of respondents expect the Federal Reserve will fully wind down its purchases of Treasury and mortgage securities before the fourth quarter of 2014. Most panelists expect the Federal Reserve to raise interest rates sometime in 2015.
“There is much less consensus among panelists regarding fiscal policy. About 40% of survey respondents deem fiscal policy as ‘too restrictive’ at present, a similar percentage consider it ‘about right,’ while more than 20% indicate it is ‘too stimulative.’ In addition, there is neither clear consensus regarding the primary cause of the current fiscal deficit, nor the best way to close the deficit. A majority of the NABE Policy Survey panel feels that uncertainty about fiscal policy is holding back economic recovery, although the share that holds this opinion is smaller than that which held this view in the August 2013 survey. There is one area of fiscal policy in which there is consensus among panelists: Congress should not permanently cap the outstanding amount of federal debt at its present level.
“There is also no clear consensus among the NABE survey panelists about the long-term impacts from the Affordable Care Act (ACA) or the Dodd-Frank financial regulations. Although a plurality (42%) believes that the ACA will have no significant effect on the long-term economic growth rate of the U.S. economy, 30% believe that the healthcare law will reduce long-term economic growth. One in five panelists expects the ACA to raise the long-term economic growth rate. The panel split among roughly similar lines when asked about the long-term effects of the Dodd-Frank law.
“A large majority of panelists do not think that Eurozone policymakers have engineered a successful solution to the European sovereign debt crisis and expect the issue to flare up again in the next year or two.”
Consistent with the findings of the NABE policy surveys conducted in March and August 2013, there was little consensus among the survey panelists regarding fiscal policy. Nearly 40% of February 2014 survey respondents characterized current fiscal policy as “too restrictive,” a similar share thought it “about right” and more than 20% indicated that current fiscal policy is “too stimulative” (Figure 1). Furthermore, there was not much agreement about the source of the current fiscal deficit. While 39% of survey respondents felt that excessive spending was primarily responsible for the current deficit, 36% indicated that the primary cause was the output gap (i.e., economy operating at less than full potential). Nearly one-quarter of the panelists blamed insufficient revenues as the primary source of today’s deficit.
The NABE Policy Survey asked panelists what would be the best way to address the current fiscal deficit. Responses were divided among different policy options. A plurality of panelists (37%) indicated that structural policies to stimulate stronger economic growth would be the best option, while 32% preferred a mix of spending restraint and increased revenues. The remaining responses were split among other options, including “doing nothing at all,” which was cited by 15% of panelists, because in their view the present deficit is “not material.” Twelve percent of panelists would rely primarily on spending restraint to reduce the deficit, while only 4% of survey respondents would rely primarily on increased revenues. There was a similar lack of consensus among panelists about the best policy options to address the rise in the deficit-to-GDP ratio that the Congressional Budget Office (CBO) projects for the next two decades.
The survey also asked panelists which area of spending should be targeted if the government chooses to restrain spending. A plurality of survey respondents (39%) would target federal healthcare spending, one-quarter of respondents would target defense spending, and the remaining one-third was divided between non-defense discretionary spending (7%), Social Security spending (9%), and other federal entitlement spending (15%). As to the single best method to increase revenues, nearly one-half of survey respondents (46%) thought that Congress should broaden individual and corporate tax bases. Nearly equal percentages of panelists would enact a broad-based energy or carbon tax (15%), a national sales or value-added tax (14%), or an increase in Social Security and Medicare contributions (13%).
There was also less agreement than in the August 2013 policy survey about the effect of fiscal uncertainty on the pace of economic growth. A majority of panelists in the current survey (60%) indicated that current fiscal policy was holding back the economic recovery, compared to the 70% who held this same view in August—just ahead of the government shutdown last fall.
There was, however, broad agreement among the NABE Policy Survey panelists regarding one aspect of fiscal policy. More than 80% of the respondents did not think Congress should permanently cap the amount of outstanding federal debt at its current level of roughly $17 trillion (Figure 2). Only 11% of respondents thought that federal debt should be permanently capped.
In contrast to the NABE Policy Survey panel’s views on fiscal policy, there was greater consensus among the panel about monetary policy at present. Similar to the August 2013 survey results, a majority (57%) of respondents in the current survey thought monetary policy was “about right.” At the same time, 37% believed that it was “too stimulative.” Only 4% of respondents characterized present monetary policy as “too restrictive.” Nearly 70% of those surveyed believed that quantitative easing has been “a success.”
Over the course of its last two policy meetings, the Federal Reserve’s Open Market Committee (FOMC) has reduced the Fed’s security purchases from $85 billion per month to $65 billion per month. More than 40% of the panelists said they anticipate that the Fed will end such purchases completely in the fourth quarter of 2014, with a similar percentage expecting purchases to end in 2015 or later (Figure 3). The remaining 15% of survey respondents expect the Fed to complete its “taper” before the fourth quarter of 2014. When asked when the Federal Reserve should completely wind down its security purchases, 29% of the NABE Policy Survey panelists replied that the Fed should do so prior to the fourth quarter of 2014, suggesting that some panelists would prefer the Fed move at a quicker pace in ending such purchases. However, most of the panel apparently believes that the FOMC is not “behind the curve,” since a large majority (70%) feel that the Fed should completely wind down security purchases by the fourth quarter of 2014 or later.
A small percentage of the panel (only 12%) expects the FOMC to raise its target for the federal funds rate in 2014. Roughly three-quarters of panelists expect the first rate hike sometime in 2015 (Figure 4). One-quarter of panelists feels that the FOMC should increase its target for the fed funds rate this year. Some panelists indicated they would prefer that the FOMC move at a faster pace in raising its target for the federal funds rate (similar to results regarding the halting of Fed purchases of securities). However, the majority of the panel believes that the FOMC is also not “behind the curve” in raising the federal funds rate.
In terms of forward guidance, there was no clear consensus regarding the FOMC’s pledge to keep its target for the federal funds rate unchanged until “well past the time that the unemployment rate declines below 6½ percent.” Roughly one-half of the panel thought that the FOMC should continue this pledge while the other half of the panel indicated that this pledge should be scrapped. There was greater consensus regarding the FOMC’s 2% long-run inflation goal: More than 70% of survey respondents indicated that such a goal should be maintained. Moreover, roughly the same percentage expects that PCE inflation will be “near” the 2% goal in five years.
Legislative and Regulatory Policy
The survey included questions about the effects of the Patient Protection and Affordable Care Act (ACA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) on the long-term growth rate of the U.S. economy. In both cases, a plurality of respondents believes that these new laws will have no significant effect on the long-term economic growth rate of the U.S. economy. Regarding the ACA, 42% of respondents indicated they do not believe that the healthcare law would have a “significant” effect on long-term economic growth. At the same time, 18% of panelists felt that it would foster an increase in long-term economic growth (Figure 5), while 30% of the panelists indicated that the ACA would reduce the long-term growth rate of the U.S. economy.
As for the impact from new financial services regulations, half of the panel (50%) responded that the Dodd-Frank legislation would have no “significant” effect on long-term economic growth, while 12% indicated the nation’s long-term economic growth rate would increase under the new regulations. However, 28% of survey respondents reported that regulations under the Dodd-Frank legislation would reduce long-term economic growth. Roughly one out of ten respondents to the questions regarding the impact on economic growth from the ACA and the Dodd-Frank regulations said they had no opinion or didn’t know.
The survey also asked panelists their views about the effects of long-term unemployment benefits. Although a slight majority (54%) indicated that long-term benefits give workers a significant disincentive to seek employment, 43% did not think these benefits created disincentives to seek work. There was greater consensus regarding the law that bans crude oil exports. Roughly three-quarters of the panelists believe that the Obama administration should ask Congress to lift the ban on crude oil exports, while only 16% think the White House should not seek an end to the ban.
Foreign Economic Policy
There was also general consensus among the NABE Policy Survey panel regarding the European sovereign debt issue. The survey asked panelists if policymakers in the Eurozone had successfully engineered a solution to the European sovereign debt crisis. Only 15% of the panelists felt the European sovereign debt crisis had been solved. Seventy percent of survey respondents indicated that the crisis will flare up again in the next year or two.
The survey also asked the panel whether continued “tapering” of the Fed’s securities purchase program will cause volatility in financial markets in emerging economies over the next few months (such as the volatility experienced between May 2013 and August 2013). A majority of respondents (59%) indicated they expect continued tapering to cause further volatility in emerging economy financial markets, while 27% of panelists felt that continued tapering is fully discounted in financial prices.
Policy Survey Committee
Jay Bryson, Wells Fargo Securities, Chair
Douglas Duncan, Fannie Mae
Douglas Williams, Jerome Levy Forecasting Center
Mine Yucel, Federal Reserve Bank of Dallas