Monetary Policy

The NABE membership generally thinks that monetary policy is appropriate at the current time, but that the withdrawal of special support for the housing market via purchase of mortgage-backed securities will bring higher mortgage rates. The economists also believe that some (but not all) proposals for restricting the Federal Reserve’s powers or its regulatory oversight will reduce its effectiveness in conducting monetary policy. Simultaneously, they feel the Fed’s independence is very important. However, they also do not hold the Fed blameless in the run-up to the financial crisis.

Two-thirds of respondents view the current posture of monetary policy as about right. This is down from 70 percent in August of 2009, but up from 63 percent a year ago. Thirty percent view current policy as too stimulative.

When asked what posture they would prefer in the next six months, 54 percent want a more restrictive policy vs. 41 percent who favor no change. However, 63 percent of respondents expect that the Federal Funds target will be increased, with most expecting a 25- or 50-basis-point rise.

Survey participants were also asked what impact they expect the end of the Fed’s mortgage-backed securities (MBS) purchase program to have. The nearly unanimous view is that mortgage rates will rise. Twenty-eight percent think that rates will rise up to 25 basis points, while another 42 percent think rates will rise up to 50 basis points.

A 58 percent majority of respondents believes that removal or reduction of the Fed’s regulatory power would make its conduct of monetary policy less effective, while 30 percent see no impact. A similar share, 59 percent, sees the imposition of an audit by the Government Accountability Office (GAO) as reducing effectiveness, while only 25 percent feels it would have no impact. A majority of 54 percent of survey respondents believe that a reduction of the Fed’s consumer protection role would have no impact on the effectiveness of monetary policy actions.

Even though almost 90 percent of respondents think that the Fed’s independence is very important, 44 percent believe that inadequate regulatory oversight was the primary contributor to the financial crisis and another 36 percent say the cause was about equally due to lax regulatory oversight and inappropriate monetary policy.

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