Business Economists Think Fed Rate Stance Right

WASHINGTON – The U.S. economy is unlikely to fall back into recession and lower interest rates are not needed to foster its recovery, according to a survey of business economists released Monday.

The survey of 193 economists by the National Association for Business Economics found that 69 percent believe the odds of a so-called double-dip recession are under 50-50. In a March survey, 76 percent of the respondents viewed odds of a renewed recession as below even.

The latest survey, which comes a day before Federal Reserve officials meet to consider interest-rate policy, found 77 percent of the economists think the current stance of monetary policy is about right.

In addition, it found that 50 percent of the economists expected the Fed to hold its benchmark rate at the current 40-year low of 1.75 percent over the next six months, while 31 percent expected rate hikes and 18 percent expected cuts.

The survey showed a marked shift from views held in March. At that time 66 percent of respondents said they expected rates to rise in the coming six months.

But economic data since then have shown a spotty recovery and Federal Reserve Chairman Alan Greenspan has made clear the central bank would wait for clearer signs the economy was on a sound footing before raising rates.

In fact, a recent spate of weak data has heightened uncertainty about the path for interest rates, with some economists looking for rate cuts before year-end.

Although half of the economists polled said the Fed was likely to hold interest rates steady for a prolonged period, the survey results indicated some preference for lower rates.

While 57 percent of the economists said they preferred an unchanged monetary policy, 23 percent voiced a desire for lower rates, and only 18 percent preferred higher rates.

PLUSES AND MINUSES

NABE said 85 percent of economists surveyed said deflation was unlikely in the United States in the next two years. Some economists have said the potential risk of deflation, a broad-based decline in prices that can feed a downward economic spiral, could lead the Fed to lower interest rates.

Almost half of the economists polled said the stance of U.S. fiscal policy was about right, with 37 percent saying it was too stimulative and 15 percent calling it too restrictive.

However, the survey found clear concern over the longer-run fiscal picture, which has deteriorated considerably in recent months.

Fifty-six percent of the respondents said they preferred a more restrictive fiscal policy over the next six months and 79 percent rated the performance of the administration and Congress in forming fiscal policy as poor or somewhat poor.

When respondents were asked to rate the greatest immediate challenge for economic policy, the prospect of a stocks crash and the financial instability that would follow topped the list.

As for economic strengths, growth in productivity -- worker output per hour -- and the United States' perceived lead in technology shared the billing.

CORPORATE MISDEEDS

Several questions on the survey dealt with the government's response to the series of corporate scandals that have shaken the markets.

While there was an even split among the economists over whether further government regulation was needed, there was a clear consensus that more regulation is on the way.

The survey found some concern over the potential for excessive regulation. Fifty-eight percent of the respondents said re-regulation could occur as a backlash that would go too far, although 36 percent thought that unlikely.

A majority of the economists said increased regulation would likely slow the pace of innovation, impede productivity growth and lead to fewer choices for consumers.

As for regulation of financial markets specifically, 66 percent said they did not think greater regulation was needed, but 83 percent thought it was coming nonetheless.