Tags: fed | cnbc survey | bond buying

CNBC Survey: Fed to Continue Bond Buying Into 2014

By    |   Tuesday, 30 April 2013 05:29 PM

Federal Reserve asset purchases will continue well into next year, according to the overwhelming majority of respondents to the April CNBC Fed survey.

Also revealed is that support for reducing the deficit, once a dominant theme of the survey, has dropped to a slight majority. Those responding see the central bank purchasing $370 billion next year as part of quantitative easing. This year the average total of expected purchases increased to $936 billion from $917 billion in the March survey.

The survey revealed 40 of 46 respondents forecast asset purchases next year. Those responding pushed ahead by several months any course reversal.

"The economy is struggling. The data have been weak, and continued growth in free reserves is indicative of risk aversion and lack of credit demand,” John Kattar of Ardent Asset Advisors wrote in response to the survey. “I now believe an extension of QE into 2014 is somewhat more likely than any tapering before year end."

The average month the Fed is expected to begin to cut its monthly purchases of assets is February 2014, a month later than the last survey and two months later than the survey in January.

An end to the program is not expected until July 2014, two months later than the average for the survey in March. The first fed funds rate increase is seen in the second quarter of 2015, a quarter later than the previous survey.

Weak growth reports have boosted expectations the central bank will keep its pace of bond buying at $85 billion a month throughout the year.

The Fed has kept overnight interest rates near zero since late 2008 and has tripled its balance sheet to about $3 trillion through purchases of securities, which are aimed at pushing longer-term borrowing costs lower.

The survey showed 52 percent say the nation must urgently enact deficit reduction, from 67 percent in March and 80 percent in January. Nearly 40 percent say the U.S. has at least a couple of years to institute such a plan, from 25 percent in March and 16 percent in January.

Those looking to boost spending cuts dropped by more than half to 9 percent, while those who want to reduce the cuts rose to 20 percent from 17 percent in March.

Respondents see government tax increases and spending cuts shaving a half point off growth this year. The growth outlook for 2013 and 2014 remains unchanged from March at 2.1 percent and 2.6 percent, respectively.

The average participant forecasts about a 1 percent decline in the Standard & Poor’s 500 Index between now and June, and a 1.3 percent rise from current levels by the end of the year. Stocks were named the best investment by 73 percent of respondents, with 62 percent selecting real estate.

Respondents included fund managers, strategists and economists.

Meanwhile, Reuters reported that a slowdown in a key measure of U.S. inflation in March will encourage Fed officials to keep aggressively buying bonds and curb any enthusiasm for an early tapering of the program.

The Fed is seeking to lower unemployment while keeping inflation near its 2 percent target. Data released Monday showed prices were heading in the wrong direction, Reuters reported.

The Fed's favored gauge of consumer prices — the personal consumption expenditures price index — fell to 1.0 percent year-on-year in March from 1.3 percent in February. It was the smallest gain in 3-1/2 years.

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Federal Reserve asset purchases will continue well into next year, according to the overwhelming majority of respondents to the April CNBC Fed survey.
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Tuesday, 30 April 2013 05:29 PM
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