US economists are pleased with the Federal Reserve’s policy on interest rates but skeptical of the government’s ability to rein in spending, curb greenhouse gases or overhaul health care, a new survey says.
The latest semiannual survey by the National Association for Business Economics (NABE) released yesterday indicated almost 70 percent of the 266 economists surveyed earlier this month thought the Fed’s monetary policy was “about right,” up from 63 percent in March and 56 percent a year ago.
The results came as indicators pointed to an improving economy, presenting policy makers with wrenching decisions over how quickly to roll back measures taken in the past year to avert a financial collapse. Quick action risks plunging the economy into another dive, while moving too slowly could drive inflation.
Meanwhile, the administration of US President Barack Obama is taking ambitious steps to simultaneously curb greenhouse gases in the atmosphere, cut health care costs and reform financial regulation.
“This is almost certainly one of the fastest-moving and most controversial economic policy environments we have experienced in a generation,” said NABE president Chris Varvares, also president of Macroeconomic Advisers LLC.
US Federal Reserve Chairman Ben Bernanke, appointed by the president last week to a second four-year term, cut the fed funds rate to near zero last December to reduce the cost of borrowing and introduced a slew of emergency lending programs.
The survey found economists split on what should come next, with 49 percent saying the Fed should leave monetary policy alone over the next six months and 45 percent in favor of a more restrictive policy. However, 56 percent versus 44 percent said they expected the Fed to leave interest rates untouched rather than hiking rates to avoid inflation.
While economists thought the Fed was targeting a 2 percent inflation rate, they expected the actual rate of core inflation to average 3 percent from 2014 to 2018.
The prediction reflected economists’ concerns about the federal government’s ability to reverse the steps it has taken to stimulate growth. A large majority doubt federal lawmakers can bring down spending. Three quarters said they wanted a more restrictive fiscal policy over the next two years — only 28 percent expected it to happen.
About 58 percent predicted the government’s fiscal policy would boost economic growth by between a half and one-and-a-half percentage points over the next year. Just over three quarters of the economists surveyed said no new stimulus package was needed.
The survey found serious doubts about the effectiveness of federal government proposals for a cap-and-trade program to cut emissions. Only 15 percent believed cap and trade would significantly cut global emissions, while 56 percent believed the plan would actually boost emissions overseas by pushing business activity to countries with fewer restrictions.
However, only 28 percent said those cap-and-trade-related business shifts would significantly hamper domestic economic activity.
None of the major health care proposals being debated in Congress drew much support from the economists surveyed. Fewer than half believed most of the proposals would bring overall improvements in health care, give more Americans access to it or drive down costs.
Forty-seven percent expected the reforms would “decrease quality and increase costs.”
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