Market Insider

Fed behind the curve, has too much influence: Survey


The Federal Reserve is viewed as having too much influence on capital markets and is seen as behind the curve when it comes to interest rates, according to a new online Wall Street survey.

Fifty-nine percent of respondents to the survey, conducted by ConvergEx Group, said the central bank was behind the curve with respect to interest rates, given its dual mandate of maximizing employment and controlling inflation.

Thirty-two percent said rates were just right at current levels. The survey of 219 investment professionals from the buy-side, sell-side and trading venues, was conducted Aug. 12 to 14, just ahead of the Fed's annual Jackson Hole, Wyoming, symposium this week.

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Federal Reserve Board Chair Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014 in Washington.
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That contrasts somewhat with the findings of CNBC's own Fed survey, which found 49 percent of respondents said the central bank was just right when it came to accommodation. Forty-six percent said it was too accommodative. Thirty-six economists, fund managers and analysts participated in the CNBC survey.

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Two-thirds of the respondents in ConvergEx's survey said the Fed has too much influence on capital markets, and 38 percent said they were confident the Fed was making the right policy decisions. But 34 percent combined said they were not confident the Fed was making the right decisions, while 28 percent were neutral.

CovergEx's chief market strategist, Nicholas Colas, said the Fed's influence on markets is a personal pet peeve, and he was not surprised respondents agreed. "I do think it might be a healthier relationship between capital markets and Federal Reserve officials if they take a step back. Not to be secretive but not to be in the press all the time and make comments on stock valuations. I'm not sure it's healthy for them to be so apparent in the print press and media."

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What did surprise Colas was the number of participants who say the Fed is behind the curve. "We are at a very important juncture for monetary policy and central banking globally. We have navigated through the rescue period and that was handled well. Saving the world was an awesome thing the Fed did. How do they unwind saving the world?" he asked, noting it's a difficult transition.

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The Fed's Jackson Hole symposium is expected to send a dovish message, as central bank Chair Janet Yellen reiterates her view that the labor market is still not healed, and interest rates should not rise for a while longer. But Fed officials provided a bit of unexpected news for markets Wednesday when the minutes of the July meeting showed that officials were surprised by improvement in the labor market and had discussed but rejected earlier rate hikes.

There was also a Fed chair report card in the survey, though its early days for Yellen. More than half, or 53 percent, gave Yellen a "B" grade, but she got zero votes in a question on who is your favorite Fed chairman.

Forty-eight percent said Paul Volcker, 31 percent named Ben Bernanke, and 18 percent favored Alan Greenspan. The controversial Arthur Burns got 1 percent.

The ConvergEx survey has a margin of error of plus or minus 10 percentage points.

—By CNBC's Patti Domm