Wall Street Still Divided on Fed Easing But Optimistic on Economy
Market participants are divided on whether the Federal Reserve will ease again, but have grown somewhat more optimistic about the economy, according to the January CNBC Fed Survey.
About half of survey respondents believe there will be a third round of quantitative easingfrom the Fed in the next year, unchanged from October; 44 percent say it’s not in their forecast and 8 percent are unsure.
"QE3 is not necessary and could be counterproductive to achieving the Fed's dual mandate," PNC economist Stuart Hoffman wrote. He was one of 75 economists, equity, and bond-fund managers and analysts to respond to the CNBC survey.
Those who predict the Fed will launch another round of quantitative easing believe it will be 24 percent larger than they did in the October survey. The average forecast is for $567 billion of QE, up from $457 billion. Fifty-eight percent of those who think the Fed will act believe it will do so by April.
Meanwhile, respondents put only a 20 percent probability on the U.S. entering another recession in the next 12 months, down from 25 percent in October. Their 2012 GDP growth forecast nudged up to 2.45 percent from 2.37 percent in the prior survey.
"Barring a European meltdown, growth is likely to continue accelerating and be stronger than expected which will cause the Fed to be more optimistic by the end of the year," wrote Joel Naroff of Naroff Economic Advisors.
"We're increasingly concerned about the level of 'Eco-phoria' that has infected the markets."
But the group has it skeptics."We're increasingly concerned about the level of 'Eco-phoria' that has infected the markets," said Guy LeBas of Janney Montgomery Scott. "That is, the interpretation of recent 'ok' economic data has been far more optimistic than the underlying numbers justify." He’s concerned about the market being disappointed with the fourth quarter 2011 growth tally, now projected to be around 3 percent.
Survey respondents marked down their outlook for the S&P 500 index. They now project it will hit 1329 on June 30, compared with their average forecast of 1358 in the October survey. By December, however, they see it rising to a strong 1387, a gain of around 5.5 percent from Friday’s close.
Europe remains the most important wild card in most forecasts and fully 88 percent of respondents expect Greece to default in the next three years; 48 percent see a Spanish default and 28 percent predict a default by Italy.