Tags: CNBC | Fed | ECB | Economies

CNBC Survey: Most Expect Fed, ECB to Stoke Economies — but Not Right Now

Tuesday, 31 July 2012 11:10 AM

The Federal Reserve and the European Central Bank (ECB) will likely take steps to stimulate their respective economies although not necessarily this week, a CNBC survey of market participants finds.

The survey found that 89 percent said they believe the ECB will purchase more sovereign debt, and 78 percent said they expect the Fed to undertake additional quantitative easing (QE).

The ECB has purchased sovereign debt in the past, but used money already in circulation to buy those assets, whereas quantitative easing, or QE, (a monetary stimulus tool the Fed has used twice now to spur recovery), prints money out of thin air used to buy assets from banks to pump the economy full of liquidity.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

The Fed and the ECB are both meeting this week to analyze monetary policy, right as both economies release unemployment data, although most poll respondents don't expect announcements necessarily this week.

"The basic rationale for a third round of quantitative easing is that … the Fed needs to do more to do its part and end this period of subpar nominal [gross domestic product] GDP growth," wrote Mike Dueker of Russell Investments in response to the CNBC survey.

He’s in the camp that expects Fed action this week, which represented 26 percent of the respondents.

John Katter of Eastern Investment Advisors disagrees. “Although I think more QE is coming, it will not be this year. The economy is not weak enough, the stock market is doing well, and interest rates are low enough.”

Monetary-stimulus measures tend to weaken paper currencies and send stock prices rising by pushing down interest rates when cuts to benchmark-lending targets fail to spark enough recovery on their own.

Fed action, however, won't steer the country away from what the survey found as the biggest threat to recovery, a combination of tax hikes and spending cuts that kick in together at the end of the year, a one-two punch known as a "fiscal cliff" that could send the country sliding back into recession next year unless Congress acts to avoid it.

The survey found that 42 percent of respondents viewed the fiscal cliff as the biggest danger to the U.S. economy, even moreso than the European debt crisis, which a third viewed as most threatening.

“The odds that we reach the 'cliff' with no action taken is rising,” said David Resler of Nomura Securities, CNBC added.

Other experts say the Fed will stick with a wait-and-see approach, opting instead to address jolting the economy at its next meeting in September if the country shows no signs of improvement by then.

"We do not expect that the Fed will announce any additional action in the upcoming meeting as the ideological division among members remains strong," according to analysts at Spanish bank BBVA, the AFP newswire reported.

"However, it is more likely that the Fed will announce QE3 in the September meeting," the analysts wrote, referring to a third round of quantitative easing.

The online survey was conducted July 27 and July 28, 2012, after the U.S. GDP for the second quarter was released, and included responses from 50 top money managers, investment strategist and professional economists.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Tuesday, 31 July 2012 11:10 AM
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