US NABE: SEES FED RATE HIKE OVER NEXT SIX MONTHS
By Kevin Kastner
WASHINGTON (MktNews) - Adding yet one more voice to the consensus, the National Association for Business Economics said Wednesday that a majority of its 181 members expect a more restrictive monetary policy is on the horizon.
In its quarterly Economic Policy Survey, the NABE reported that 57% of respondents expect a Fed rate hike over the next six months when they were surveyed in July, though 75% of the members said policy had been "about right" in the last six months.
Only 3% said that policy had been too restrictive in recent months, the same percentage that said they expect a rate cut in the next six months.
"As any sense of immediate global financial crises fades, sentiment among NABE members continues to shift toward the view that financial conditions, including precariously high stock prices, are too stimulative. Not surprisingly, then, most of our panelists expect the Fed to raise short-term interest rates modestly by the end of the year," said NABE President Joel Prakken.
NABE reported that 63% of the respondents expected short term rates to rise in the next six months, up from 20% in the previous survey three moths earlier. Those expecting an increase estimate its magnitude to be less than 50%, with the change in attitude attributed to an apparent end to the crisis that prompted rate cuts last year.
The respondents look for the Fed to reverse some or all of its 75 basis point easing by the end of 1999, starting with the 25 basis point hike in June.
The NABE panel were skeptical of the federal government's projections of an average yearly surplus of 2.4% through 2009, with 61% commenting that the estimates were "too optimistic" and 30% said they were "reasonable."
Almost half of the members (47.5%) said the surplus should be used to pay down the Federal debt and prop up Social Security and Medicare. The next most popular option was cutting taxes (24%), with 20% wanting a combination of these options. Only 4% wanted some type of government spending increase.
Investing Social Security funds in the stock market was an idea that was overwhelmingly rejected by the members, with 68% against it, compared with 28% in favor of it.
About 42% of the members said that they believe that Social Security, excluding Medicare, is "substantially insolvent" and that major adjustments are needed to fix it. The remainder said that Social Security was either near insolvency (36%) or solvent (14%), suggesting that little or no changes to the system are necessary.
Privatization of the Social Security System, excluding Medicare, found approval with the members, with 65% in favor, 30% against.
The panel was critical of the administration's proposal to add prescription coverage as a Medicare option starting in 2002, with a monthly premium of $24 and a $2000 annual cap on benefits until 2008. Almost two-thirds of the respondents (65.7%) said that the plan would worsen Medicare's problems, but 26% gave no response, suggesting uncertainty.
While the survey respondents were split on the effects of a minimum wage hike on lower income families, almost 65% said that such a move would have little or no effect on broad measures of wages and prices.
The survey showed that for the most part, federal, state, and local governments are acting effectively to avoid Y2K related problems.
The largest problem facing the U.S. today, according to the panelists, is the danger of a stock market "bubble", with 9.9% choosing that from a list of potential answers. However, this is down from 11.3% in the March survey.
The next largest problem, the members said, was a poorly prepared labor force, which received 8.8% of the vote, down from 9.7% in March.
Interestingly, the next largest vote getter was an inefficient and burdensome tax system, which received 8.3% of the vote in the July survey, up from 2.8% in March, while the same percentage said that the size of "underfunded" Social Security spending was the biggest problem.
No respondents cited inflation, deflation or monetary policy as a major problem. In addition, no one listed the Japanese recession as the major problem, while one respondent cited the other crises in Russia, Brazil, and East Asia as the largest problem. One respondent said that Y2K was the most serious problem. |
