CNBC Fed Survey: ECB Edition, June 4, 2014
Transcript of CNBC Fed Survey: ECB Edition, June 4, 2014
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FED SURVEY: Special ECB EditionJune 4, 2014
These survey results represent the opinions of 30 of the nations top money managers,
investment strategists, and professional economists.
They responded to CNBCs invitation to participate in our online survey. Their responses werecollected on May 30-June 2, 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 thosewho did accept our invitation.
1.Which actions, if any, do you expect the ECB to take at itsmeeting on June 5? (You may select more than oneresponse.)
Other responses:
Hint at QE Conditional LTRO, possible end to SMP
sterilisation
These measures still are not adequate Why the need to do anything tangible
when rhetoric has worked so well?
66%
55%52%
31% 31%
14%
0%
10%
20%
30%
40%
50%
60%
70%
Signal rates
will remainlow for along time
Reduce
refinancingrate
Reduce
deposit rate
Long-term
refinancingoperation
Quantitative
easing
Other
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Average refinancing rate: 0.11 %
Average deposit rate: - 0.10 %
Average:
$1.30 per euro
Avg. euro zone GDP: 1.11 %
Avg. euro zone inflation: 0.73 %
2.What refinancing/deposit rate do you expect the ECB to setat the June 5 meeting?
3-4.What is your forecast for euro zone GDP and inflationyear-over-year percentage change (2014 vs 2013)?
5.What is your year-end forecast for the euro?
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6.What percent do you ascribe to each of these factors toexplain the recent decline in the yield on the 10-year U.S.
Treasury note?
Other: Earnings uncertainty Euro zone deflation or
disinflation
Global disinflation Ten-year yield is as low as it
will be
Two major factors keepingU.S. Treasury yields low:
1) QE tailwind becomes aheadwind - removing an
important inflation driver 2)
U.S. Treasury bonds have a
high relative value compared
with other sovereign debt
options in a low inflationary
global marketplace
US Treasuries look cheapcompared to other developed
sovereign debt
The narrowing of the deficitand shortfall in new Treasury
bond issuances relative to
expectations
Federal Reserve's statementsthat interest rates will remainbelow historically "normal"
rates for some time
30% reduced supply of U.S.treasuries as federal deficit
shrinks; 20% momentum and
the voodoo of chart readers
Correction from oversoldcondition on bonds late last
year and some rebalancing
from stocks to bonds because
of the huge stock rally the
past two years
The bond market is telling usthat U.S. growth is going to
be very modest. The Fed andconsensus are too optimistic.
Stronger bank purchases ofU.S. Treasuries due to stiffer
liquidity rules implemented
at the start of the year
26%
21%
19%18%
9%8%
0%
5%
10%
15%
20%
25%
30%
Flight tosafety
Lowerexpectations
for U.S.growth
Other Lowerexpectations
for U.S.inflation
Expectedactions by
the ECB
Laggedeffects of QE
by the Fed
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7.Do you expect the Federal Reserve will ever allow itsbalance sheet to decline, either by selling assets or
allowing securities it holds to roll off?
91%
4% 4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Yes No Don't know/unsure
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When do you expect the Fed to allow its balance sheet todecline?
Note: In the April survey, the question was phrased as: When do you believe the Fed will begin
reducing the size of its balance sheet?
0%
5%
10%
15%
20%
25%
30%
Oct
Nov
Dec
Jan'15
Feb
Mar
Apr
May
JunJul
Aug
Sep
Oct
Nov
Dec
Jan'16
Feb
Mar
Apr
May
JunJul
Aug
Sep
Oct
Nov
Dec
Jan'17
AfterJan
28-Apr 4-Jun
Averages:
April 28 survey:October 2015
June 4 survey:March 2016
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8.When do you think the FOMC will first increase the fedfunds rate?
0%
5%
10%
15%
20%
25%
Averages:
April 28 survey:
July 2015
June 4 survey:
August 2015
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9.What is your forecast for year-over-year percentagechange in the headline U.S. CPI?
1.78%
2.02%
0%
1%
2%
3%
4%
5%
2014 vs 2013 2015 vs 2014
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11. What do you expect the yield on the 10-year Treasurynote will be on ?
2.80%
3.10%
3.33%3.39%
3.00%
3.18%
3.08%
2.95%2.89%
2.53%
3.44%3.37%
3.32%
3.21%
2.90%
3.54%
3.24%
2.0%
2.5%
3.0%
3.5%
4.0%
Jun 18'13
Jul 30 Sep 6 Sep 30 Oct 29 Dec 17 Jan 28'14
Mar 18 Apr 28 Jun 4
Survey Dates
June 30, 2014 December 31, 2014 June 30, 2015
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12. What is your forecast for the year-over-year percentagechange in real U.S. GDP for ?
Jan
29,
'13
Mar19
Apr30
Jun18
Jul 30Sep17
Oct29
Dec17
Jan
28,
'14
Mar18
Apr28
Jun 4
2014 +2.56 +2.60 +2.62 +2.56 +2.52 +2.63 +2.53 +2.62 +2.77 +2.78 +2.75 +2.33
2015 +2.90 +3.02 +3.00 +2.81
+2.56%
+2.60% +2.62%
+2.56% +2.52%
+2.63%
+2.53%
+2.62%
+2.77% +2.78% +2.75%
+2.33%
+2.90%
+3.02% +3.00%
+2.81%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2014 2015
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13. Where do you expect the fed funds target rate will be on ?
Jul 31Jun
18
Jul 30 Sep 6Sep
17
Oct
29
Dec
17
Jan
28 '14
Mar
18
Apr
28
Jun 4
June 30, 2014 0.20% 0.18% 0.16% 0.14% 0.13% 0.14% 0.16% 0.13% 0.17% 0.12%
Dec 31, 2014 0.28% 0.21% 0.21% 0.20% 0.19% 0.15% 0.27% 0.17%
Dec 31, 2015 0.97% 0.92% 0.82% 0.70% 0.72% 0.83% 0.99% 0.68%
0.20%
0.18%0.16%
0.14% 0.13% 0.14%
0.16%
0.13%
0.17%
0.12%
0.28%
0.21% 0.21%0.20%
0.19%
0.15%
0.27%
0.17%
0.97%
0.92%
0.82%
0.70%0.72%
0.83%
0.99%
0.68%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
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14. What is your primary area of interest?
Comments:
Lynn Reaser, Point Loma Nazarene University: Monetary policyis approaching a critical split in the road as the ECB shifts to moreease, the Fed begins to tighten, and the BOJ maintains its currentstance.
John Kattar, Ardent Asset Advisors: Over the past 100 years orso, the Fed has increased its balance sheet by just over 7% per year(using adjusted monetary base from the St. Louis Fed as a proxy).
Given the size of the current balance sheet, that would equate toover $300 billion per year and $25 billion per month of growth,whether it's called QE or not. Although I expect QE to end in the fall,I think it will revert to something like $25 billion per monthsometime in 2015.
Economics50%
Equities25%
Fixed Income
4%
Currencies0%
Other
21%
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Subodh Kumar, Subodh Kumar & Associates: Central banksneed to avoid augmenting sense of dependency in the markets of
relief from risk by monetary action. With the history of stateintervention in Europe, this is a particular risk of QE for the ECB. Itneeds also to get the euro rate lower in order to boost poor growth.This mix augurs for volatility to rise in global markets.
William Larkin, Cabot Money Management: Deflationary factorstoday are being generated from surplus capacity across the globe,which is keeping interest rates lower longer than a rational investormight have expected. This is a factor of the inter-connectivity of our
worldwide financial and economic systems.
Joel Naroff, Naroff Economic Advisors: The major issue facingthe Fed is: can businesses hold down pay increases once fullemployment is approached? Since that should be by early 2015, theuncertainty will likely cause Fed officials to start raising the specterof higher rates by year's end.
Diane Swonk, Mesirow Financial: Markets are underestimating
the impact of falling deficits on Treasury bond yields. The shortfall insupply is quite substantial, especially in a world where Putin hasshown his hubris.
Allen Sinai, Decision Economics: This will probably be the secondlongest postwar economic expansion and nearly the best equity bullmarket since World War II.