cnbc fed survey, dec. 16, 2014

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CNBC Fed Survey – December 16, 2014 of 32

FED SURVEYDecember 16, 2014

3. What is the probability the Fed will begin a new QE program in

the next year/two years? (0%=No chance of new QE, 100%=Certainof new QE)

Note: In previous surveys, this question was: “What is the probability the Fed will begin a new QEprogram in the 12/24 months after it concludes the current QE program?”

10%

14%

9%

14%

18%

14%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Sep 16 Oct 28 Dec 16

Chance of new QE

Next year Next two years





4. The Fed will remove the phrase “considerable time” from its

monetary policy statement in ...

41%

24%

24%

11%

23%

41%

13%

21%

66%

11%

8%

11%

3%

0%

3%

0% 10% 20% 30% 40% 50% 60% 70%

September

October

December

After December

January

After January

February

March

April

June

July or later






5. Which of these is the bigger risk to your forecasts for Fed policy

in 2015?

49%

53%

64%

50%

34%

39%

13%

24%

14%

8%

21%

24%

0%

10%

20%

30%

40%

50%

60%

70%

Jul 29 Sep 16 Oct 28 Dec 16

Fed will be more dovish than I expect Fed will be more hawkish than I expect

Risks are balanced

Fed more dovish

Fed more hawkish

Risks are balanced





6. Relative to an economy operating at full capacity, what best

describes your view of the amount of resource slack in the U.S.right now for labor?

48%

34%

20%18%

16%

36%

40%

60%

69%

55%

4%6%

3%

0% 0%

8%

11%

6%5%

24%

4%

9%9% 8%

5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

July 29 August 20 Sep 16 Oct 28 Dec 16

Considerably more slack now Modestly more slack now

No difference Modestly less slack now

Considerably less slack now

Modestly less slack

Modestly more slack

Considerably less slack

No difference

Considerably more slack





Relative to an economy operating at full capacity, what best

describes your view of the amount of resource slack in the U.S.right now for production capacity?

8%

56%

60%

64% 64%

55%

13%

24%

0%

10%

20%

30%

40%

50%

60%

70%

July 29 August 20 Sep 16 Oct 28 Dec 16

Considerably more slack now Modestly more slack now

No difference Modestly less slack now

Considerably less slack now

No difference

Modestly more slack

Modestly less slack

Considerably less slack

Considerably more slack





What is the probability there will be a 10 percent correction for

the U.S. stock market by March 31, 2015? (0%=No chance ofcorrection, 100%=Certainty of correction)

0%

5%

10%

15%

20%

25%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Average:44.7%





7. Where do you expect the S&P 500 stock index will be on … ?

2017 2029

2053

2109

2066

2093

2075

2149

2111

2194

2250

2311

1,800

1,900

2,000

2,100

2,200

2,300

2,400

Apr 28 Jun 4 July 29 Sep 16 Oct 28 Dec 16Survey Dates

June 30, 2015 December 31, 2015

June 30, 2016 December 31, 2016

Dec 31 2016

June 30, 2016





8. What do you expect the yield on the 10-year Treasury note will

be on … ?

3.54%

3.24%

3.15% 3.16%

2.90%

2.63%

3.43%3.45%

3.19%

2.96%

3.30%

3.52%

2.0%

2.5%

3.0%

3.5%

4.0%

Apr 28 Jun 4 Jul 29 Sep 16 Oct 28 Dec 16

Survey Dates

June 30, 2015 December 31, 2015

June 30, 2016 December 31, 2016

Dec 31, 2016

June 30, 2016





9. What is your forecast for the year-over-year percentage chang

in real U.S. GDP for …?

Jan29,

'13

Mar19

Apr30

Jun18

Jul30

Sep17

Oct29

Dec17

Jan28,

'14

Mar18

Apr28

Jun 4Jul29

Sep16

Oct28

Dec16

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+1.89+2.26+2.28+2.4

2015 +2.90+3.02+3.00+2.81+2.75+2.90+2.90+3.0

2016 +2.8

+2.56%

+2.60%+2.62%

+2.56%

+2.52%

+2.63%

+2.53%

+2.62%

+2.77%+2.78%+2.75%

+2.33%

+1.89%

+2.26%+2.28%

+2.43%

+2.90%

+3.02%+3.00%

+2.81%

+2.75%

+2.90%+2.90%

+3.02%

+2.88%

1.5%

1.7%

1.9%

2.1%

2.3%

2.5%

2.7%

2.9%

3.1%

2014 2015 2016

2016





10. What is your forecast for the year-over-year percentage

change in the headline U.S. CPI for …?

1.78%

2.02% 1.99%

1.77%

1.59%

2.02%

2.29% 2.27%

2.01%

1.74%

2.17%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

Jun 4 Jul 29 Sep 16 Oct 28 Dec 16

Survey Dates

2014 2015 2016

2016





11. When do you expect the Fed to allow its balance sheet to

decline?

Note: In the April survey, the question was phrased as: “When do you believe the Fed will be

reducing the size of its balance sheet?”

0%

5%

10%

15%

20%

25%

30%

35%

O c t

N o v

D e c

J a n ' 1 5

F e b

M a r

A p r

M a y

J u n J u l

A u g

S e p

O c t

N o v

D e c

J a n ' 1 6

F e b

M a r

A p r

M a y

J u n J u l

A u g

S e p

O c t

N o v

D e c

J a n ' 1 7

A f t e r J a n …

Apr 28 Jun 4 Jul 29 Sep 16 Oct 28 Dec 16

Averages:April 28 survey:

October 2015

June 4 survey:

March 2016

June 29 survey:

December 2015

Sept. 16 survey:

December 2015

Oct. 28 survey:

January 2016

Dec. 16 survey:

February 2016





12. When do you think the FOMC will first increase the fed funds

rate?

0%

10%

20%

30%

40%

50%

60%

April 28 Jun 4 Jun 29 Aug 20 Sep 16 Oct 28 Dec 16

Averages:April 28 survey:

July 2015

June 4 survey:

August 2015July 29 survey:

August 2015

Aug 20 survey:

July 2015

Sep 16 survey:

June 2015

Oct 28 survey:

July 2015Dec 16 survey:

July 2015





13. How would you characterize the Fed's current monetary

policy?

28%

49%

46%

49%

44%

39%

43% 43%

49%

43%

49%50%

17%

6%

3% 3% 3%

6%

13%

3% 3%

6% 5% 6%

0%

10%

20%

30%

40%

50%

60%

July 31, 2012July 29, 2014 Aug 20 Sep 16 Oct 28 Dec 16

Too accommodative Just right Too restrictive Don't know/unsure

Too accomodative

Don't know/unsure

Too restrictive

Just right





14. Where do you expect the fed funds target rate will be on … ?

Jul 30Sep17

Oct29

Dec17

Jan28

'14

Mar18

Apr28

Jun 4 Jul 29Aug20

Sep16

Oct28

Dec16

Jun 30, 2015 0.50%0.39%0.40%0.33%0.31%

Dec 31, 2015 0.97%0.92%0.82%0.70%0.72%0.83%0.99%0.68%1.05%0.89%0.98%0.89%0.83%

Jun 30, 2016 1.53%1.56%1.48%1.38%

Dec 31, 2016 1.99%2.13%2.04%1.93%

0.50%

0.39% 0.40%

0.33% 0.31%

0.97%0.92%

0.82%

0.70% 0.72%

0.83%

0.99%

0.68%

1.05%

0.89%

0.98%

0.89%

0.83%

1.53%1.56%

1.48%

1.38%

1.99%

2.13%

2.04%

1.93%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Dec 2016

June 2016

Dec 2015

June 2015





15. At what fed funds level WILL/SHOULD the Federal Reserve

stop hiking rates in the current cycle? That is, what will/shouldbe the terminal rate?

3.16%

3.44%

3.20%

3.39%3.30%

3.40%

3.17%

3.38%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Will Should

Aug 20 Sep 16 Oct 28 Dec 16





16. When do you believe fed funds will reach its terminal rate?

0%

5%

10%

15%

20%

25%

30%

35%

40%

Aug 20 Sep 16 Oct 28 Dec 16

Average:

Aug 20 survey:

Q4 2017

Sep 16 survey

Q3 2017

Oct 28 survey

Q4 2017

Dec 16 survey

Q1 2018





17. How will lower oil prices affect U.S. GDP/core inflation in the

first quarter?

+0.39

-0.27

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

GDP Inflation

P c t

. p o i n t s





19. Will the European Central Bank launch a QE program in whic

it purchases sovereign bonds?

Note: In Oct 8 survey, question was: “Will the European Central Bank do outright quantitative easing?

74%

15%

10%

78%

17%

6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Yes No Don't know/unsure





When do you believe the ECB will announce its quantitative

easing? (Only asked of those who answered “yes” to previous question.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Nov Dec Jan'15

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec AfterDec'15

Oct 28 Dec 16

Averages:

Oct 28 surveyFebruary 2015

Dec 16 surveyFebruary 2015





20. Has the U.S. stock market already discounted a fed funds rat

hike by the Federal Reserve next year?

56%

36%

8%

0%

10%

20%

30%

40%

50%

60%

Yes No Don't know/unsure





21. How much concern do you have that economic weakness in

Europe could create wider global risks? (1=Not concerned at all,10=Highest level of concern)

5.4 5.4

4.8

0

1

2

3

4

5

6

7

8

9

10






23. In the next 12 months, what percent probability do you

place on the U.S. entering recession? (0%=No chance ofrecession, 100%=Certainty of recession)

Aug

11,2011

Sep

19

Oct

31

Jan

23,2012

Mar

16

Apr

24

Jul

31

Sep

12

Dec

11

Jan

29,2013

Mar

19

Apr

30

Jun

18

Jul

30

Sep

6

Oct

29

Dec

17

Jan

282014

Mar

18

Apr

28

Jul

29

Sep

16

Oct

28

Dec

16

Series1 34.0 36.1 25.5 20.3 19.1 20.6 25.9 26.0 28.5 20.4 17.6 18.2 15.2 16.2 16.9 18.4 17.3 15.3 16.9 14.6 16.2 15.0 15.1 13.

34.0%

36.1%

25.5%

20.3%

19.1%

20.6%

25.9%

26.0%

28.5%

20.4%

17.6%

18.2%

15.2%

16.2%16.9%

18.4%

17.3%

15.3%

16.9%

14.6%

16.2%

15.0%15.1%

13.6

0%

5%

10%

15%

20%

25%

30%

35%

40%

Survey Dates





24. What is your primary area of interest?

Comments:

Robert Brusca, Fact and Opinion Economics: Inflation is lower

and policy is tighter than the Fed and policymakers realize. The realbiggest risk to the US economy is the ongoing diversion of resourcesto China and failure to implement real free trade rules for the globaleconomy.

Thomas Costerg, Standard Chartered Bank: The FOMC meetingis likely to deliver a hawkish outcome. But we remain cool-headedabout our rate-tightening scenario. We continue to see September2015 as the likely timing for the first rate hike. We also think the

rate plateau will be 2.0%, much lower than the 3.75% the Fedexpects. We think the Fed under-estimates the likely decline in coreinflation in coming months. Inflation is likely to remain low in comingyears. As an aside, note that the 2015 FOMC is turning more dovish

given the rotation of regional Fed presidents.

Economics46%

Equities17%

Fixed Income14%

Currencies6%

Other17%





Tony Crescenzi, PIMCO: There are three escapes the Fed mustmake in order to declare its mission a success:

1. Escape from a liquidity trap: Get banks to lend

2. Escape from quantitative easing: Stop the bond buying program3. Escape from the zero bound: Hike the policy rate above zero

“If all goes according to our forecast and the U.S. economy continues

to make progress toward the Fed’s dual mandate goals of maximumsustainable employment and 2 percent inflation, the Federal Reservewill likely begin to raise its federal funds rate target off the zero

bound sometime next year.” William Dudley, President of theFederal Reserve Bank of New York

Heed Dudley’s words. The timeline for the Fed’s first rate hike willlikely hold. That said; we suggest not getting too wrapped up in the

exact timing of the Fed’s first move. Focus instead on the speed andmagnitude of future hikes. With inflation low and wage growthweak, the Fed can be afford to be patient. A pickup in wage growthin 2015 won’t likely change matters, either. Can anyone imagine

Janet Yellen saying to Americans if wages do accelerate: “For sixyears you hurt through 2% annual wage growth, a full percentagepoint below normal, but over the past six months you’ve all done

pretty well, so we at the Fed are going to raise rates aggressively toput a stop to it!” No way! More likely the Fed lets the U.S. economy “run hot” a bit, as William Dudley recently said, by keeping its policyrate below where it normally would when the unemployment rate

has fallen.

The Fed is leery of the risks of moving too soon. It recognizes thedifficulties of resuscitating growth once it falters. In contrast,

inflation worries are more readily doused if they surface. In eithercase, the Fed can’t wait indefinitely and will likely feel compelled toget started around the middle of 2015 and pivot somewhat from thepredominant risk-management focus of recent years, which has





centered on the risks of moving too soon.

The Fed simply doesn’t know at what point inflation pressures willkick in – it is probing for the answer. Yet, the more the jobless rate

falls, the more the Fed will have to tend to the possibility thatinf lation may accelerate. While this means escaping from zero, don’texpect the rate rocket to go too far. The Fed itself sees its policy ratestaying very low for years to come, projecting in its quarterly

Summary of Economic Projections a policy rate of around 2.5% atthe end of 2016, even as it projects success in reaching its goals onemployment and inflation.

This is striking considering that the Fed normally maintains a neutralpolicy stance when it believes economic conditions are ideal, whichto the Fed translates to a policy rate of 3.75%. Janet Yellen and theFed obviously want to keep their thrusters open so that Americans

can get fatter paychecks, which have been moving in slow motion,like a man walking on the moon.

PIMCO believes that the neutral policy rate is far lower than the Fed

believes, at around 2%. There are many potent reasons for this (seeRich Clarida’s, “Navigating the New Neutral”). Here are five providedby the Fed in the minutes to its March 19th, 2014 meeting:

1. Higher precautionary savings by U.S. households2. Higher global savings3. Demographics

4. Slower growth in potential output5. Restrained credit growth

These potent secular headwinds are important for investors to stay

mindful of when constructing their investment portfolios. Be leery ofgetting caught up in the very convincing optimistic cyclical outlookand the tendency to over-extrapolate the longer-term outlook fromshorter-term trends.





As just mentioned, we suggest a focus on the big picture, bycentering portfolio construction on the speed and magnitude of

future rate hikes. This means constructing portfolios that are likely tobenefit from low policy rates not only in the United States, but also

in Europe, where markets are priced for both the European CentralBank and the Bank of Japan to keep their policy rates under 1% forthe rest of the decade.

Investors in such a climate are likely to continue reaching for yieldand higher returns by reaching outward along the risk spectrumshown below. We expect these assets to remain well supported for

some time.

All that said, asset prices don’t move in a straight line and there areshort-term considerations to heed, not the least of which is thelaunch of the Fed’s rate hike cycle, which could well be disruptive to

the many assets that have taken flight from the Fed’s monetary fuel.

Investors can be opportunistic if they stay mindful of the destinationfor rates in the U.S. and globally when market sentiment inevitably

occasionally sours against assets that are likely to benefit fromtoday’s era of low interest rates.

So will the Fed achieve its great escape? Probably. Yet like othercentral banks, it is not likely going very far, so it will feel like it neverleft.

John Donaldson, Haverford Trust Co.: Essentially every inhibitionto the Fed removing the "considerable time" phrase has been

removed. The ability to make that change right now has beenhanded to them on the proverbial silver platter. Stock market at fair

valuation, check. Employment improving, check. Bond market stable,check. Every single borrower who can has refinanced their debt,check. Global rates low, check. Dollar strengthening, check.





significant risks for the European economy and European inflation.These risks are quite likely to be transmitted to the US and

elsewhere although they are unlikely to derail the current US bullstock market and economic expansion. Concerns are clearly

intensifying...justifiably.

John Kattar, Ardent Asset Advisors: The Fed needs to be morefocused on the deflationary risk of collapsing oil prices and a surging

dollar than on the better employment numbers now. At the margin,I think this makes them more dovish.

Subodh Kumar, Subodh Kumar & Associates: Marketexpectations have lingered of a brave new world driven byquantitative ease. Rather than being proactive currently, marketsappear to be reactively jousting. The reality even for central banksand certainly Wall Street is the interaction between momentum,

value and geopolitics.

Geopolitics cannot be solely laid to rest on Islamic fundamentalistterrorism but includes border tensions and income distribution from

the Levant to Europe to Asia. The volatility for the unexpected islikely to rise, including currency.

We favor value over momentum as the next likely change for whichto prepare portfolios now. The risks we see lie in Europeanweakness and geopolitical tensions with the upside potential drivenby better Asian growth, including Japan, developing from late 2015.

Still, S&P 500 operating and global earnings are likely to be less than

year-end 2014 consensus. In fixed income, we favor medium-termcorporate and sovereign issues denominated in North American

currencies and in Sterling. In equities, diversification dominated bygeographic dispersion is likely to be a lesser factor than quality infinancial strength, ongoing cash flow and last but not least seasonedoperational management.





For frugality over aspiration globally different from the last cycle, weunderweight the consumer and instead overweight industrials for

infrastructure and geopolitics-linked defense spending. Likely insustained restructuring, we still favor Finance and Information

Technology with advantage for early movers embracing deepchange.

Rob Morgan, V2V Associates: The Fed will face a bit of a

conundrum in 2015 - a strengthening economy, but inflation that isrunning below the desired band.

Joel Naroff, Naroff Economic Advisors: It is all coming togetherand the Fed will use the stronger economy as the cover to raise ratessooner than expected.

Lynn Reaser, Point Loma Nazarene University: It is now high

time to remove the phrase "considerable time" from the Fed'sstatement. The impact of plunging oil prices on growth will be muchstronger than any feed through to lower core inflation.

John Ryding, RDQ Economics: The Fed has to begin to set thestage for rate hikes in 2015 at next week's FOMC meeting.Expecting "considerable time" to be replaced by language that says

"can afford to be patient in removing accommodation"

Allen Sinai, Decision Economics: The U.S. economy looks terrificand a challenge for the Federal Reserve will be how to balance the

achievement of full employment but not price stability in choosingthe path for the federal funds rate.

Hank Smith, Haverford Investments: The Fed has done an

excellent job over the past 6 years. With some help from better fiscalpolicy, the Fed should do a good job getting back to neutral/normal.

Diane Swonk, Mesirow Financial: The primary responsibility of




any central bank is price stability; too low inflation could be the Fed'sgreatest optical to raising rates next year. The Fed has much to lose

by raising rates prematurely. Their powder is dry if they have toraise rates only to return to the zero bound.

Peter Tanous, Lynx Investment Advisory: Looking for higherGDP growth next year--a Spring Surprise

Scott Wren, Wells Fargo Advisors: Lower oil prices, just likelower interest rates, are not always a good thing. Sure, consumershave more money in their pockets to spend and some industries see

their costs lowered. On the other side of the coin, however, is theconcern over why oil prices and interest rates are low. I would muchrather see oil prices rising along with interest rates as a result ofglobal economic growth accelerating at an above average pace....lowoil prices and low interest rates tell me that the markets do not

believe that will be the case any time soon. Unfortunately, I agree.

Mark Zandi, Moody's Analytics: The Federal Reserve will stickwith the script it put in place over a year ago, namely to begin

raising short-term rates in June 2015 and normalizing rates by theend of 2017.

cnbc fed survey, dec. 16, 2014

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