WASHINGTON - Business economists are almost equally divided over whether the Federal Reserve will pare its bond purchases at the current pace through year’s end or pause to let the economy recover further.
The views were unveiled Monday by the National Association for Business Economics. The association conducted its twice-a-year survey of 230 members between Jan. 30 and Feb. 6,before Janet Yellen’s first appearance before Congress as Fed chairman.
About 43 percent of the association’s members said they thought the Fed would complete its pullback in bond purchases in the fourth quarter. About 42 percent said they thought the Fed would finish in 2015 or later.
At each of its last two policy meetings, the Fed cut bond purchases by $10 billion. They are now at a pace of $65 billion a month. There are seven meetings left in 2014.
The Fed’s bond purchases are intended to drive down loan rates to stimulate spending and economic growth.
A majority of those surveyed agreed with the Fed’s gradual end to its accommodative stance, with 57 percent saying current monetary policy is “about right.” About 37 percent thought it was “too stimulative.”
The Fed’s decision to scale back the bond purchases, and the prospect of further cutbacks have already prompted mortgage rates to rise.
Nearly 70 percent of respondents in the semiannual survey said the Fed’s program, known as quantitative easing, has been a success.
The Fed began its current round of bond-buying in September 2012, when the unemployment rate was 8.1 percent. The rate in January was 6.6 percent, a five-year low.
Most respondents thought the Fed would wait until 2015 to start raising its key short-term interest rate above the current near-zero level. Yellen told Congress earlier this month that the Fed would keep the rate near zero “well past” the time the unemployment rate falls below 6.5 percent, as long as inflation remains low.
As for government spending, respondents were split on the economic effect of the new federal health-care law. Although 18 percent thought the Patient Protection and Affordable Care Act would increase growth, 42 percent thought it would have no effect and 30 percent thought it would hurt growth.
The Congressional Budget Office recently said the health-care law would cause some people to work less,reducing employment by the equivalent of 2 million full-time jobs in the next decade.
“Respondents … generally agree about monetary policy, but there is no clear consensus about most fiscal issues,” said Jay Bryson, global economist at Wells Fargo Securities and chairman of the National Association for Business Economics’ policy survey committee.
Information for this article was contributed by staff members of The Associated Press and by Jim Puzzanghera of the Los Angeles Times.
Business, Pages 26 on 02/25/2014