- The NABE survey shows that economists have been the most critical of the Fed’s tightening policy over the past 13 years.
- 21% of economists surveyed believe the Fed’s policy is “too restrictive” – up from 14% in March and August last year, and the highest since 2011.
- The scrutiny comes after the Fed recently indicated that a rate cut in March was unlikely.
The Fed’s tight monetary policy has had its fair share of skeptics. Now, more economists are beginning to wonder whether Jerome Powell is on the right track.Thank you for reading this post, don't forget to subscribe!
According to the National Association for Business Economics’ Economic Policy Outlook, 21% of economists surveyed believe the Fed’s monetary policy is “too restrictive” – up from 14% in both the March and August surveys last year, and up from 14% in 2011. Highest reading since.
The number of economists who view the central bank’s policy as “about right” has also declined in recent releases, falling from 74% last August to 70% today.
The results of the survey, collected between Jan. 23-30, came just before Fed Chair Jerome Powell signaled a March cut was likely, raising the possibility of a first rate cut. Traders are now betting that the Fed will cut rates by 125 basis points by the end of the year — a more aggressive policy than officials have suggested.
“Tightening” monetary policy occurs when the Fed makes it more expensive to borrow money, which has a cooling effect on the economy. Last year, the Fed raised its benchmark interest rate from near zero to more than 5%, the most aggressive rate-hike cycle since the 1980s.
Those rate hikes have had a knock-on effect throughout the economy, stoking inflation, but also pushing some companies toward bankruptcy and testing the commercial real estate market.
Still, the health of the US economy remains strong – as evidenced by the bumpy jobs report, strong GDP data and hot consumer spending. This has increased the Fed’s cap on increasing rates, leading to speculation in the market as to when the first rate cut will occur.