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In the first CNBC Fed survey since the Federal Reserve’s announcement, announcing its new, more monetary policy strategy, respondents no longer anticipated a rate hike until 2023 from the central bank.
The result is a possible first indication that the Fed’s new strategy has allowed inflation to run above its 2% target for an unspecified amount of time, with an immediate impact on the rate outlook.
The new average forecast, which has the Fed as of February 2023, is six months later than the July survey and comes amid more upbeat views on economic recovery and higher inflation forecasts. Under the previous strategy, where the Fed aimed for the symmetric 2% target, those circumstances may have brought the outlook forward for the rate hike.
Bon Federal’s chief economic adviser John Riding said, “The federal adopted average targeting of inflation (discretion) is sufficient to tolerate overshoots and rates will remain in effect for many years.”
The central bank starts a two-day policy meeting from Tuesday.
Most of the 37 respondents, including economists, fund managers and strategists, believe the Fed will be tight, if inflation goes above its 2% target. Forty-eight percent said the Fed would bear upward-targeted inflation for six months to a year without hiking, and 41% believed the Fed would follow high inflation for a year or more.
CNBC specifically asked how high inflation could be for a period of six months before the Fed hike. The average response was 3.2%.
Although the CNBC data is one of the first to put real numbers in the Fed’s new policy, respondents said they wanted central banks to work clearly.
Low unemployment as “point unemployed” has been discarded as an inflationary driver, but we have no idea which culprit we should see now … neither how long nor how much overshoot was tolerated Will go.
Many respondents worried that inflation might be an issue sooner than the Fed. Sixty-five percent now view the actions of Congress and the Fed as above 44% in a July survey to combat the economic effects of the virus in the form of inflation.
“Have everyone forgotten that there are long gaps in economic policies and that policies already implemented this year are likely to have a significant positive impact in 2021;”, said Jim Paulsen, chief investment strategist at Leuthawl Group. “It’s time for policy officers to step back and take a breather.”
To which Peter Bokover, chief investment officer of the Blakeley Advisory Group, said, “The Fed keeps having a lot of talk about what else it can do. Instead, I think about reversing this extraordinary policy I want to start thinking / listening. We get an effective vaccine, which could come very well in the next few months. ‘
Recession already over?
In general, economists broadened their approach to the economy. Just over half believe that the current recession is over and, on average, ends in May. Of the 47% who believe it is not over, they estimate on average that it will end in April.
In general the forecast improved, with GDP now expected to decline 2.6% this year, down from a 4.5% drop in July. The unemployment rate outlook also improved several points and forecasters saw the Consumer Price Index higher than the percentage point from the July survey in the year ending at 1.4%.
Overall, 69% of respondents say recovery is happening faster than originally predicted.
“The economy is expected to return very soon and rapidly in the spring,” said Stephen Stanley, chief economist at Amherst Pierpoint Securities. “Real GDP growth, inflation, and unemployment are all ahead of schedule.”
But there are considerable risks to the forecast. Three-three percent of respondents believe that there is a chance for a second wave of viruses to fall in the winter and down just 5 points from the July survey.