Respondents to the CNBC Fed Survey think that the Federal Reserve will decide to reduce its tapering Wednesday and increase interest rates sooner than expected, despite rising inflation concerns.
Survey respondents predicted that Fed officials would announce a reduction in monthly asset purchases on Wednesday. They will then start tapering in November. The Fed has expected to reduce its $120 billion in monthly purchasesTreasurys, mortgage-backed securities and Treasurys by $15 Billion a Month. This would mean that purchases will end in May.
Responses moved forward their forecast for the first rate hikeTo September 2022, December was the last survey.
The September average is not indicative of a more optimistic outlook. Only 44% of 25 respondents think the Fed will raise rates before July. That means rate hikes could follow the taper’s end by just months.
Many respondents were critical of the Fed’s expectations for tapering and increasing rates of hiking. 60% believed this. inflation is a big enough concernThat the central bank stop buying assets now.
According to Peter Boockvar (chief investment officer, Bleakley Advisory Group), the Fed is currently trying to deal with inflation by increasing their balance sheet to $8.5 trillion and then to $9 trillion next July while still maintaining rates at zero.” Boockvar noted that even though it tapers, the Fed will continue to add to its balance sheets. “Inflation, the bond market reaction are going to overwhelm the Fed.”
The Fed’s slow rate-hike policy is also a source of criticism.
John Ryding of Brean Capital, chief economic advisor, stated, “At some time, the Fed is going have to accelerate its timeline for rate hikes. Or risk losing credibility.”
Fed funds futures markets predict a 58% likelihood of Fed funds’ first rate rise in June and a 73% probability of another increase by December.
Concern is expressed by calls for faster tightening inflation has risen to the No. 1 risk facing the economyRespondents say that eclipsing is the most popular. Covid
The consumer price index for 2021 was forecast to rise for the seventh consecutive survey. It now stands at 4.8%, year-over-year, up from 4.4% September. The CPI will rise by 3.5% in 2022. This is an increase from 3% reported in September. It is a signal that inflation may be moving away from the Fed’s target of 2%.
Although 64% believe the inflation rise is temporary, others continue to raise alarm bells. 40% of respondents want rate hikes from the Fed now to fix the inflation problem. Just 26% of respondents believe that inflation has reached its maximum point, while 44% expect the pace of price rises to continue through January.
“The right question is: “Will inflation return to the Fed’s 2% target with no recession?” The answer is no. Robert Fry, Robert Fry Economics chief economist said, “I would describe the recent rise in inflation as eventually temporary but very persistent.”
The inflation worries raised by spending bills in Congress will only increase, prompting more aggressive Fed tightening.
Fourty-five percent of respondents agree new spending by CongressIf it’s not offset by higher taxes, it will inflationary. However, 36% of respondents believe that it will still be inflationary regardless of whether it is offset. The administration claims that spending will cause inflation, but only 24 percent disagree with this assertion.
Nearly two thirds think the Fed should increase taper speed to offset the new spending. Forty percent prefer quicker rate increases in response, as opposed to 56% who oppose these measures.
The impact of the spending bills on growth is a matter for dispute. 33% believe that they will increase GDP growth, 29% claim they will decrease growth, and 38% say they won’t. Concerning employment, 38% think the spending bill will increase job opportunities, 29% believe it will decrease growth, and 33% anticipate it having no impact.
The outlook for overall growth is still declining. GDP was forecast at 5% in 2012, down from 6.6% as of July’s survey, and 3.6% next year.
CNBC has launched the Risk/Reward Index survey to ask respondents about the stock outlook. This asked them how likely they were for stocks to move 10% upwards or downwards over the next six month.
These first results indicate a 48% probability of a 10% decline and 39% of a 10% rise, giving an index score of -9. The survey also found that 72% think stocks are undervalued in relation to the outlook for earnings and growth. It was up from 56% during the previous survey but still not as high in the summer.
Respondents think the S&P 500Between now and the year-end, it will fall by half a percent and then rise by just 3% next. A rising yield on 10-year Treasury bonds is expected to affect stocks. It will reach 2.2% in 2022.
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