Survey finds support for Fed, jitters on spending

[August 31, 2009]  NEW YORK (AP) -- 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 finds.

The latest semiannual survey by the National Association for Business Economics, set to be released Monday, indicates almost 70 percent of the 266 economists surveyed earlier this month think the Fed's monetary policy is "about right," up from 63 percent in March and 56 percent a year ago.

The results come as indicators point 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 Obama administration 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, president of Macroeconomic Advisers LLC.

Fed 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 expect the Fed to leave interest rates untouched rather than hiking rates to avoid inflation.

While economists think the Fed is targeting a 2 percent inflation rate, they expect the actual rate of core inflation to average 3 percent from 2014 to 2018.

The prediction reflects 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 want a more restrictive fiscal policy over the next two years -- only 28 percent expect it to happen.

About 58 percent predict the government's fiscal policy will 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 say no new stimulus package is 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 believe cap and trade would significantly cut global emissions, while 56 percent believe 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 believe most of the proposals would bring overall improvements in health care, give more Americans access to it or drive down costs. Forty-seven percent expect the reforms would "decrease quality and increase costs."

On the government's ideas for new financial regulations, the survey found economists tend to believe they will reduce access to credit but help smooth out some of economy's booms and busts.

Top marks went to reforming the agencies that give credit rankings to different kinds of debt, including the kind of toxic mortgage securities blamed for the recession. About 84 percent said reforming the ratings agencies would benefit consumers and nonfinancial companies.

[Associated Press; By ANDREW VANACORE]

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