FED SURVEY

July 30, 2013

These survey results represent the opinions 50 of the nations top money managers, investment strategists, and professional economists. They responded to CNBCs invitation to participate in our online survey. Their responses were collected on July 25-26, 2013. Participants were not required to answer every question. Results are also shown for identical questions in earlier surveys. This is not intended to be a scientific poll and its results should not be extrapolated beyond those who did accept our invitation.

1. For all of 2013 and for all of 2014 (and only in 2014), what is the total amount of additional asset purchases the Federal Reserve will have made?
2013
$1,400

2014

$1,200

$1,000

$858.8

$917.0

$936.6

$883.6

$921.9

$800 Billions $600

$400

$370.6
$200

$367.1

$373.5

$0 1/29/2013 3/19/2013 4/30/2013 6/18/2013 7/30/2013

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FED SURVEY
July 30, 2013 3. In what month do you expect the Fed to begin tapering its purchases?
June 18
60%

July 30

Averages
50%

Jan. 29: Dec 2013 March 19: Jan 2014

40%

April 30: Feb 2014 June 18: Dec 2013

30%

July 30: November 2013 48% selected September 2013 and 60% said tapering would begin in September or October 2013

20%

10%

0%

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FED SURVEY
July 30, 2013

4. By how much do you believe the Fed will reduce its asset purchases in that first month?

$40 $35 $30 $25

$22.1 $19.2

Billions

$20 $15 $10 $5 $0 July 5

July 30

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FED SURVEY
July 30, 2013 5. When do you expect the Federal Reserve will completely stop purchasing assets?
June 18
30%

July 30

Averages
25%

Jan 29: Nov 2013 Mar 19: May 2014 Apr 30: July 2014

20%

Jun 18: July 2014 July 30: August 2014

15%

10%

5%

0%

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FED SURVEY
July 30, 2013 6. Based on your expectations for tapering, what percentage of the ultimate impact on each market is already discounted in the overall prices of that market?

70%

68%

68% 66%

66%

64%

62%

60%

58%
58%

56%

54%

52% Treasuries Equities Mortgages

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FED SURVEY
July 30, 2013 7. What is the highest unemployment rate at which you believe the Fed will taper/halt its asset purchases?

8.0% 7.9% 7.8% 7.7% 7.6% 7.5% 7.4% 7.3% 7.2% 7.1% 7.0% 6.9% 6.8% 6.7% 6.6% 6.5% 6.4% 6.3% 6.2% 6.1% 6.0% Taper Halt

7.32%

6.71%

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FED SURVEY
July 30, 2013 8. When it comes to how you think the Fed may taper the current amount of QE, do you believe it will:
June 18 July 30

90%

80%
80%

74%
70%

60%

50%

40%

30%

20%

16% 10% 7% 6%

10%

4%

3%

0% Reduce Treasuries only Reduce mortgagebacked securities only Reduce both Don't know/unsure mortgage -backed securities and Treasuries

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FED SURVEY
July 30, 2013 9. Who will/should President Obama nominate as the next Fed chairman?
Will
0% Ben BERNANKE 10% 20% 30%

Should
40% 50% 60% 70% 80%

10% 2%

Martin FELDSTEIN

Roger FURGUSON

2% 6%
2% 8%

Don KOHN

Glenn HUBBARD

Christine ROMER

2% 2%
6% 10% 2% 44% 4% 4% 72% 20%

Larry SUMMERS

John TAYLOR

Paul VOLCKER

Janet YELLEN Don't know/unsure

Note: Steve Liesman received one vote (2%) in should category.

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FED SURVEY
July 30, 2013

10. Compared to Ben Bernanke, the next Fed chairman will be:
60%

52%
50%

40%

30%

26%

20%

14%
10%

4% 2%
0% Much more dovish Somewhat No different more dovish Somewhat more hawkish Much more Don't hawkish know/unsure

2%

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FED SURVEY
July 30, 2013 11. How essential are the following qualities for the next Fed chairman? (On a scale of 1 to 5, where a higher number means more essential)
0.00 Monetary policy expertise 1.00 2.00 3.00 4.00 5.00

4.52

Ability to manage a financial crisis

4.30

Good communication skills

4.22

Respect from financial markets

4.18

Concern about inflation

4.08

Financial market expertise

4.04

Respect from international financial leaders

3.41

Concern about unemployment

3.39

Good political skills

3.27

Banking regulatory expertise

2.94

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FED SURVEY
July 30, 2013 12. Please rate the following three candidates for the Fed chairmans job on those qualities. (On a scale of 1 to 5, where a higher number means a higher rating.)
Summers Yellen 2.00 Monetary policy expertise (4.52) Bernanke 2.50 3.00 3.50
3.41

4.00

4.50

5.00

4.40 4.62

Ability to manage a financial crisis (4.30)

3.29 3.30 3.00

4.51

Good communication skills (4.22)

3.39 3.67

Respect from financial markets (4.18)

3.16 3.32 3.30 3.14

4.16

Concern about inflation (4.08)

3.73

Financial market expertise (4.04)

3.51 3.23 3.78 3.63 3.61 3.83

Respect from international financial leaders (3.41)

4.38 4.53 4.27

Concern about unemployment (3.39)

2.73

Good political skills (3.27)

3.16

3.51

Banking regulatory expertise (2.94)

3.00 3.18

3.56

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FED SURVEY
July 30, 2013
Sum of candidate ratings weighted by essentialness of each quality. (Question 12 rating multiplied by question 11 essentialness ranking.) 180

160

140

Banking regulatory expertise (2.94) Good political skills (3.27)

120

Concern about unemployment (3.39) Respect from international financial leaders (3.41) Financial market expertise (4.04) Concern about inflation (4.08) Respect from financial markets (4.18)

100

80

60

Good communication skills (4.22) Ability to manage a financial crisis (4.30) Monetary policy expertise (4.52)

40

20

0 Summers Yellen juh

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FED SURVEY
July 30, 2013 13. Since September 2012, market functioning in the government bond market has:
March 19
0% 10%

April 30
20%

June 18
30% 40%

July 30
50% 60% 70%

Improved a lot

0% 0% 2% 8% 19%

Improved somewhat

11% 12% 17% 60% 65% 47% 46% 15% 15% 29% 25% 2% 2% 2% 2% 4% 7% 8% 2%

Stayed the same

Worsened somewhat

Worsened a lot

Don't know/unsure

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FED SURVEY
July 30, 2013 Since September 2012, market liquidity in the government bond market has:
March 19
0% 10%

April 30
20%

June 18
30%

July 30
40% 50% 60%

0%
Improved a lot

4% 5% 6% 29%

Improved somewhat

17% 21% 30% 48% 52% 41% 28% 15% 17% 19% 20%

Stayed the same

Worsened somewhat

Worsened a lot

4% 2% 5% 8%
4% 7% 9% 8%

Don't know/unsure

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FED SURVEY
July 30, 2013 14. Since September 2012, market functioning in the mortgagebacked security market market has:
March 19
0% 5%

April 30
10% 15%

June 18
20% 25%

July 30
30% 35% 40% 45%

Improved a lot

4% 2% 5% 4% 31%

Improved somewhat

22% 21% 31% 29%

Stayed the same

39% 21% 31% 20% 20% 32% 20%

Worsened somewhat

Worsened a lot

2% 4% 5% 6%
14% 13% 16% 8%

Don't know/unsure

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FED SURVEY
July 30, 2013 Since September 2012, market liquidity in the mortgagebacked security market market has:
March 19
0% 5%

April 30
10% 15%

June 18
20% 25%

July 30
30% 35% 40% 45%

Improved a lot

4% 2% 7% 6% 21%

Improved somewhat

28% 25% 30% 40%

Stayed the same

28% 18% 28% 19% 22% 30% 20%

Worsened somewhat

0%
Worsened a lot

7% 5% 8% 15% 13% 16% 8%

Don't know/unsure

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FED SURVEY
July 30, 2013 15. Compared with the debate at the beginning of the year, the next round of discussions to raise the debt ceiling will be:
50%

45%

44%

40%

35%
35%

30%

25%

20%

19%

15%

10%

5%

2%
0% More contentious About the same Less contentious Don't know/unsure

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FED SURVEY
July 30, 2013 What is the probability that the United States fails to raise the debt ceiling in the coming months and defaults on at least some of its payments?
60%

54%
50%

Average: 6.6%
40% Percentage of respondents

30%

28%

20%

16%
10%

2%
0% 0% 10% 20% 30% 40% 50% 60% Default probability 70% 80% 90% 100%

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FED SURVEY
July 30, 2013 16. When it comes to the budget deficit, the United States:
Should urgently enact a plan that puts it on a path toward a sustainable budget deficit Has at least a couple of years before it must enact such a plan Does not need to enact a plan that puts it on a path toward a sustainable budget deficit Don't know/unsure
90%

80%
80%

70%

67%

60%

52%
50%

52% 44%

40%

39% 40% 40%

30%

25% 16% 12% 9% 4% 4% 8%

20%

10%

0% January 29 March 19 April 30 June 18 July 30

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FED SURVEY
July 30, 2013 17. Where do you expect the S&P 500 stock index will be on ?
December 31, 2013
1,800

June 30, 2014

1751
1,750

1723 1691 1655

1,700

1,650

1612
1,600

1589 1547

1,550

1,500

1,450

1,400 Jan 29 2013 March 19 April 30 Survey Dates June 18 July 30

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FED SURVEY
July 30, 2013 18. What do you expect the yield on the 10-year Treasury note will be on ?
December 31, 2013
3.5%

June 30, 2014

3.10%
3.0%

2.80%

2.73%

2.5%

2.31%

2.35% 2.10%

2.41%

2.0%

1.5%

1.0%

0.5%

0.0% Jan 29 2013 March 19 April 30 Survey Dates June 18 July 30

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FED SURVEY
July 30, 2013 19. What is your forecast for the year-over-year percentage change in real U.S. GDP for ?
2013
3.0% +2.6% +2.6%+2.5% +2.6%+2.6%

2014

+2.7% 2.5% +2.6% +2.6% +2.3% +2.2%

2.0%

+2.1%+2.1%+2.1%+2.1% +1.9% +1.9%

1.5%

1.0%

0.5%

0.0%

Survey Dates

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FED SURVEY
July 30, 2013 20. When do you think the FOMC will first increase the fed funds rate?
Increase fed funds rate (Average response)

Survey Date Dec 11, 2012 2013 Q2 Q3 Q4 2014 Q1 Q2 Q3 Q4 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4

2017 or later
2015 Q1 2015 Q1 2015 Q1 2015 Q2 2015 Q2 2015 Q3

Jan 29, 2013

Mar 19, 2013

Apr 30, 2013

Jun 18, 2013

Jul 30, 2013

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FED SURVEY
July 30, 2013 Currently, Fed policy is not to raise interest rates until the unemployment rate is at least 6.5%. Will the Fed change that guidance?
70%

60%

60%

50%

40%

30%

30%

20%

10%

10%

0% Yes No Don't know/unsure

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FED SURVEY
July 30, 2013 If the Fed does change its guidance, what will be the new threshold?
60%

52%
50%

Average for those answering with a number: 6.23%

40%

32%
30%

20%

11%
10%

0%

0%

0%

0%

2%

0%

0%

0%

2%

Thresholds

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FED SURVEY
July 30, 2013 24. Where do you expect the fed funds target rate will be on ?
Dec 31, 2013 June 30, 2014 Dec 31, 2014 Dec 31, 2015

1.2%

Forecast for Dec 31, 2015

1.0% 0.97%

0.8%

0.6%

Forecast for Dec 31, 2014

0.4% 0.28% 0.27% 0.21% 0.17% 0.19% 0.19% 0.20% 0.18% 0.15%

0.33% 0.2%

0.16%

0.0% Jul 31 Sep 12 Dec 11 Jan 29 2013 Mar 19 Apr 30 Jun 18 Jul 30

Survey Dates

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FED SURVEY
July 30, 2013 25. In the next 12 months, what percent probability do you place on the U.S. entering recession? (0%=No chance of recession, 100%=Certainty of recession)
40%

35% 34.0% 30%

36.1%

28.5% 25.9% 25.5% 26.0%

25%

20%

20.3% 19.1%

20.6%

20.4% 17.6%

18.2% 16.2% 15.2%

15%

10%

5%

0% Aug Sep Oct Jan Mar Apr 11, 19 31 23, 16 24 2011 2012 Jul 31 Sep Dec Jan Mar Apr Jun 12 11 29, 19 30 18 2013 Jul 30

Survey Dates

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FED SURVEY
July 30, 2013 26. What is the single biggest threat facing the U.S. economic recovery?
April 30 Jun 18 Jul 30 0% 5% 10% 15% European recession/financial crisis Tax/regulatory policies Slow job growth High gasoline prices Overall inflation Deflation Debt ceiling Too little budget deficit reduction Too much budget deficit reduction Rise in interest rates Other Don't know/unsure 0% 0% 0% 2% 2% 4% 0% 0% 3% 2% 3% 2% 2% 2% 20% 20% 22% 15% 20% 20% 31% 28% 30% 25% 30% 35%

8%

2% 2% 0% 9% 4% 10% 11% 13% 14% 4% Weak wage growth Manufactured fiscal crises 13%

Other responses:
D.C. nonsense EM growth recession Hostilities with Iran Inadequate monetary stimulus Emerging world economic growth slows too much

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2013area of interest? 27. What is April your 30, primary

FED SURVEY

Currencies 0%

Other 18%

Fixed Income 16%

Economics 44%

Equities 22%

Comments:
Lou Brien, DRW Trading Group: It is important to differentiate between Fed communication regarding thresholds to raising the funds rate and their desire/intention to taper QE. Succeeding on ending QE sometime in 2014, and the timing of the first rate hike are in certain ways unrelated to one another. The future path of inflation is a crucial element to any action of the funds rate, but is something that can be, barring a near term collapse in pricing power, set aside in the tapering discussion. Tony Crescenzi, PIMCO: The tale of the taper terror is tame: forthcoming reductions in the Fed's bond buying will be offset by reductions in issuance of mortgage-backed securities and Treasury securities. For example, the Fed until recently was absorbing about 45% of mortgage originations. Today, because of the recent rise in mortgage rates, mortgage refinancing activity will fall sharply, perhaps by 40%. This will increase the Fed's absorption rate to 65% such that if the Fed reduces its MBS purchases by $10 billion per month, the absorption rate would still be higher than it has been, moving to 55%. The shrinking budget deficit will, for the first time in three years, result in a decrease in the Treasury's issuance of coupon securities -- perfect timing to temper the taper terror.

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April 30, 2013 John Donaldson, Haverford Trust Co.: Regarding the next Fed chair, I am reminded of the old Damon Runyon quote: "The race may not always be to the swift nor battle to the strong, but that is the way to bet." Bet on Yellen.
Mike Dueker, Russell Investments: So far, there has been little to suggest that the Fed would not have been better off with the old calendar guidance for QE, whereby the purchases simply end after, say, 12 months. The conditional guidance has created confusion and given the impression that everything needs to be perfect in the economy in order to stop the asset purchases. Now at least the Fed has communicated that the timetable for the first rate hike is still the second half of 2015. Kevin Giddis, Raymond James/Morgan Keegan: We are likely entering the touchy, feely stage of where the economy is either about to see a breakout in real growth, or initiate the great head fake of 2013. Rates are poised to move higher, but it requires more jobs to do so. Hugh Johnson, Hugh Johnson Advisors: The unemployment rate is unlikely to be at 7.0% in Q3 or Q4 which, along with recent strength in the dollar, could pressure the Fed to begin to taper later than consensus currently anticipates (Q4 2013). Impact of taper is, based upon our analysis, discounted/reflected in current levels of longer-term interest rates. Even so, interest rates (taper or no taper) are likely to rise modestly through 2013 and 2014 in response to improving economic data and rising inflation. Level of interest rates (10-year US Treasury notes) not likely to derail recovery (and bull market) until their yield exceeds 3.0%. At that level, the impact on housing and auto sales may begin to become somewhat significant. John Kattar, Ardent Asset Advisors: The Fed has done a masterful job of inoculating markets against a tapering of QE, but there is a bit more to do, and there is no rush. The September statement will be used to provide the clearest possible indication of a change in December or early 2014, but no tapering in September. Barry Knapp, Barclays PLC: Equity market Fed policy normalization related corrections during prior business cycles are strikingly similar in terms of the size of the correction and sector action despite decided differences in the pace of removal of policy accommodation. The correction is unlikely to be complete until domestically leveraged stocks (small caps, financials and consumer discretionary) move sharply lower. This is likely to occur closer to the September tapering. CNBC Fed Survey July 30, 2013
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April 30, 2013
David Kotok, Cumberland Advisors: Fedspeak has raised home mortgage rates and is slowing housing and recovery. Subodh Kumar, Subodh Kumar & Associates: Combining austerity to control deficits in advanced countries/inflation in emerging countries and growth in both equals challenges for markets and policymakers. Investment focus should be on quality, especially in equities and low duration in fixed income. Maintain alternate assets as a hedge. Guy LeBas, Janney Montgomery Scott: The discussion about when the Fed tapers misses the point. The power of QE-infinity was that it was an openended program. Now it no longer is. Therefore most of the damage to the bond markets was priced in when QE-infinity became QE-for-a-little-while. Donald Luskin, Trend Macrolytics: How come you don't have former Fed vice chair Roger Ferguson on your list of successors? He's bi-partisan -appointed by both Clinton and Bush. He's African-American. Greenspan favored him over Bernanke in 2006. Oh, wait -- Obama will never pick him. He's had private sector experience! Rob Morgan, Fulcrum Securities: Fed Chair Bernanke first broached the 'tapering' topic on June 19th, and the Dow the next day had its worst day of the year - down 354 points. When he discussed the topic with Congress in mid-July, the Dow and S&P 500 hit new highs. This leads me to believe that markets have largely discounted the tapering program. Joel Naroff, Naroff Economic Advisors: Until the unemployment rate gets below 7%, wage gains and thus the consumer will remain sluggish. But once that happens, the economy could accelerate sharply and that will likely force the Fed's hand sooner than most currently expect. Michael Painchaud, Market Profile Theorems: The end to Phase 1 in the plan to stabilize the economic system, namely to re-liquefy the banking system, is long overdue. The start of Phase 2, the direct pumping of liquidity by the government to the manufacturing sector - particularly small businesses, and at rates at least as favorable as those afforded the large banks in Phase 1 - is long overdue. It is the fastest way to spur a meaningful drop in the unemployment rate, and is the only true road to real recovery.

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April 30, 2013 James Paulsen, Wells Capital Management: During the rest of this year, we will be testing the widespread thought that the economic recovery and the stock market simply represent a sugar high tethered to the Fed, and when they pull away both the economy and stock market will cave. I think we will debunk this "Great Fed Myth" and enter 2014 with heightened confidence this economic and stock market recovery finally is standing on its own two feet. That is, the Fed will find that "stopping QE" will prove a most beneficial policy by significantly lifting private sector confidence! Goodbye QE and good riddance!!
Lynn Reaser, Point Loma Nazarene University: Both stocks and bonds have joined the Fed in believing that economic growth will pick up in coming months. These projections could be derailed by higher long-term rates, higher oil prices, weak exports, and an erratic consumer. John Roberts, Hilliard Lyons: We remain worried that some exogenous factor, mainly political or international, will cause a market break following the move to all-time highs we have seen this year and with equities nearing the high end of fair value in a period with extended profit margins and rising interest rates. Adding to that is the worry of revenue growth remaining sluggish while earnings exceed expectations. Chris Rupkey, Bank of Tokyo-Mitsubishi: The Fed fought inflation for too long and now they are making the mistake of fighting unemployment for too long. They can't continue to ease policy five years after the recession ended. The press is giving them a free pass on this. Hit them harder. There is no mass unemployment out there. John Ryding, RDQ Economics: The problems holding back economic growth are not monetary in nature and the risk of deflation is very low. The Fed should taper more quickly and exit from zero rates. It won't, however! Richard Steinberg, Steinberg Global Asset Management: If the Fed stays dovish and the market has a further leg up, we will call it a FOMO rally - Fear Of Missing Out. Over 50%+ of the investing public is not currently invested in equities. We expect prices to be higher in 2014, though not straight up, but a gradual climb. More of a fits and starts pattern than a staircase. Diane Swonk, Mesirow Financial: The sleeper issue for the Fed has been below-target inflation. There is a sense the last statement did not say as much as it should have. The timing is also now conducive to giving a nod to Bullard, and the contingent he represents on inflation concerns. CNBC Fed Survey July 30, 2013
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April 30, 2013
Mark Vitner, Wells Fargo: Most of the factors listed as threats to the economy have been weights on the economic recovery and not really threatened it. Policy missteps have typically played a role in past recessions, which is why I cited this concern. Clare Zempel, Zempel Strategic: The market monetarist (nominal GDP targeting) case remains the best explanation for the 2007-9 crisis and recession, and offers the best chance for faster real economic expansion.

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