Housing Trends: NABE Economic Policy Survey August 2017

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Business Economists Expect Interest Rates to Rise, Have Concerns on Health Care, Immigration and Foreign Trade Policies – NABE respondents opine that GSEs should be partly or fully privatized

The National Association for Business Economics’ (NABE) semiannual Economic Policy Survey focused on some of the critical fiscal and monetary issues that policy makers currently face (NABE Economic Policy Survey August 2017).  Conducted July 18-August 2, the survey revealed that business economists believe the current stance of fiscal and monetary policy is ‘about right’ but identified longer-term concerns.  Further, the survey respondents expect interest rates to rise; expressed concerns with health care, immigration and foreign trade policy; and prefer that Fannie Mae and Freddie Mac be partly or fully privatized.

Fiscal Policy. While about one-half of the business economists surveyed felt that the current stance of fiscal policy was ‘about right’, there was concern about the future:  Compared to the Congressional Budget Office’s 10-year deficit outlook, most economists preferred a reduction in the federal deficit as a share of GDP over time, but were resigned to the view that the more probable outcome was a rise in the deficit.  They were pessimistic about the likelihood of “meaningful, revenue-neutral tax reform” enacted this year or next.  But if it was, then nearly all felt that this could add to economic growth: one-half thought that the increase in economic growth would be less than 1 percentage point, and about one-third thought it could add 1 to 2 percentage points to growth.

NABE Economic

NABE Economic

Monetary Policy. Monetary policy includes several levers, and the survey captured views on three: the federal funds rate, the long-term inflation target, and the Federal Reserve’s balance sheet.  The survey uncovered broad support for the Federal Reserve’s current monetary policy stance, and an expectation that the Federal Reserve will continue to gradually ‘normalize’ monetary policy by setting a higher federal funds target and reducing its U.S. Treasury and agency security portfolio.  Even so, the survey uncovered a wide range of opinions on the speed of ‘normalization’ and the appropriateness of current policy.

While three-in-five felt that the current stance was ‘about right’, one-in-three felt it was too stimulative and a majority expect an additional one-quarter percentage point increase in the federal funds target by the end of 2017 – raising the upper end of the target to 1.50 percent. Further, the Federal Reserve’s stated plan to ‘normalize’ the size of its balance sheet to a level much smaller than it has been since the Global Financial Crisis was expected to raise the yield on 10-year Treasury notes:  the median response was an increase of 0.50 percentage points, but there was clear disagreement within the profession about the magnitude as responses varied from no effect to an increase of 2.0 percentage points or more. (Exhibit 1) While the survey did not include a question on mortgage rates, the implication of higher 10-year Treasury yields is that 30-year fixed-rate mortgages will become more expensive.



Domestic Economic Policy. The survey included questions on an array of domestic policy issues.  About two-thirds of respondents felt that more should be done to mitigate global warming; of those that felt that way, a majority preferred a carbon tax as an economic policy tool.[1] An even larger share—three-fourths—felt that more should be done to reduce income inequality; of those that held that view, nearly three-in-five felt that education policies that are productivity enhancing (i.e., investment in human capital) should be implemented. (Exhibit 2) And while NABE respondents had concerns about the private healthcare market, most thought the problems were manageable and favored some form of reform legislation.  However, respondents were relatively pessimistic about the odds for reform legislation, on average giving a one-in-five chance for meaningful healthcare reform by the end of this Congressional session.

There was also a wide spectrum of opinions on what to do about Fannie Mae and Freddie Mac. Nonetheless, 63 percent favored either partial or full privatization. (Exhibit 3)

International Economic Policy. Business economists were asked about their views on the Administrations’ executive actions on immigration and foreign trade, and on the Administration’s decision to disengage from the Trans-Pacific Partnership (TPP).  While there was a wide diversity of views, a clear majority regarded the actions as unfavorable.  On a scale running from “1-Consequential in a favorable way”, through “3-Inconsequential” to “5-Consequential in an unfavorable way”, the median response was “4” on immigration, foreign trade, and the TPP.

[1] A carbon tax is an excise tax based on the carbon content of fuel, requiring the payment of a fixed fee for every ton of carbon emitted.

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