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FED SURVEY

September 25, 2018


These survey results represent the opinions of 46 of the nation’s top money managers,
investment strategists, and professional economists.

They responded to CNBC’s invitation to participate in our online survey. Their responses were
collected on September 20-22, 2018. Participants were not required to answer every question.

Results are also shown for identical questions in earlier surveys.

This is not intended to be a scientific poll and its results should not be extrapolated beyond those
who did accept our invitation.

1. At its September meeting, the Federal Reserve will:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Raise interest
rates 98%

Lower interest
rates 0%

Keep rates
unchanged 2%

Don't know/
unsure 0%

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FED SURVEY
September 25, 2018

2. After its upcoming meeting, the Federal Reserve's next


directional move will most likely be:
Raise interest rates Lower interest rates
Move to negative interest rates Launch new quantitative easing

100%
100%
100% 100% 100% 100%
98% 98% 97%
95% 95%
94% Raise interest rates: 100%
92%
90%
88%

80%

60%

40%

20% Lower interest rates: 0%

Launch new quantitative easing: 0%


10%10%

4% 5% 5%
3% 2% 2% 2% 2% 3%
0% 0% 0% 0%
0%
Jan Mar Apr Jun Jul Aug Sep Nov Dec Jan Mar May Jun Jul Sep Oct Dec Jan Mar May Jun Jul Sep
27 15 26 14 26 24 20 1 13 31 14 2 13 25 19 31 12 30 20 1 12 31 25
'16 '17 '18

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FED SURVEY
September 25, 2018
(For the 100% answering the next move will be to raise rates)

When will the Federal Reserve take this action?


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Oct 0%

Nov 0%

Dec 96%

Jan '19 2%

Feb 0%
Average:
Mar 2%
December
Apr 0% 2018
May 0%

Jun 0%

Jul 0%

Aug 0%

Sep 0%

Oct 0%
After
Oct '19
0%

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

3. How many times in total will the Federal Reserve hike


rates (assuming 25-basis point increases) in …?

2018 hikes 2019 hikes


4.00

3.89
3.74
3.50

3.45 3.46 3.49

3.21
3.00

2.86 2.84
Average

2.50 2.63 2.63


2.48 2.49 2.52 2.52
2.39
2.26
2.00

1.50

1.00
Sep Oct Dec Jan Mar May Jun Jul Sep
19 31 12 30 20 1 12 31 25
Survey Dates

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

4. Do you generally approve or disapprove of the job


President Trump is doing handling the economy?

Strongly Approve Neutral Disapprove Strongly


approve disapprove
70%

Approve + Strongly Approve 61% Disapprove + Strongly Disapprove 30%

60%
Approve 52%

52%
50% 49%

45%
44%
40%
41%

Disapprove
18%
30%
Strongly
24%
Disapprove
11%
20% 20% 17%
18% 18%
19%
14% 15%
16%
13%
11%
10% 8% 12%
11% 9%

5% Strongly
Approve Neutral 9%
9%
0%
Mar 20 May 1 Jun 12 Jul 31 Sep 25

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FED SURVEY
September 25, 2018

5. How will recent tariffs announced by the Trump


administration, along with threatened and actual
retaliation by those affected countries, affect U.S.
economic growth?

Jun 12 Jul 31 Sep 25


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

3%
Increase 5%
4%

62%
Decrease 59%
59%

35%
Little or
32%
no effect
35%

0%
Don't
know/ 5%
unsure
2%

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FED SURVEY
September 25, 2018

How will recent tariffs announced by the Trump


administration, along with threatened and actual retaliation
by those affected countries, affect U.S. jobs growth?

Jun 12 Jul 31 Sep 25


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

5%
Increase 7%
4%

49%
Decrease 54%
52%

46%
Little or
34%
no effect
39%

0%
Don't
know/ 5%
unsure
4%

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FED SURVEY
September 25, 2018

6. What is the most likely outcome of current trade


negotiations among Canada, Mexico, and the United
States?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

New
three-party 83%
NAFTA deal

U.S. deal
only with 4%
Mexico

U.S. deal
only with 0%
Canada

Existing
NAFTA
deal 7%
remains
in place

Don't
know/ 7%
unsure

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FED SURVEY
September 25, 2018

7. When compared to previous trade deals, the agreements


resulting from President Trump's negotiating tactics will
be:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Better
for the 53%
U.S.

Worse
for the 20%
U.S.

The
same
for the 22%
U.S.

Don't
know/ 4%
unsure

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FED SURVEY
September 25, 2018

8. President Trump is mostly using tariffs as:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

A
short-term
bargaining 51%
tool

Long-term
protectionist
measures
to increase
the ability 27%
of U.S.
industries
to compete

Don't
know/ 22%
unsure

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FED SURVEY
September 25, 2018

9. How have your 2018 and 2019 forecasts for GDP and
inflation been affected by recently enacted U.S. tariffs
and retaliatory tariffs by other nations? (Expressed as
incremental change of forecast in percentage points)

Average responses:

2018 GDP: -0.01 percentage points

2019 GDP: -0.11 percentage points

2018 Headline inflation (CPI): +0.06 percentage points

2019 Headline inflation (CPI): +0.11 percentage points

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FED SURVEY
September 25, 2018

10. Recently several new members have joined the


FOMC and several more people have been nominated to
the Federal Reserve Board by President Trump. Relative
to the current stance of the committee on monetary
policy, how do you view the new members?

More hawkish In line More dovish Don't know/unsure


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Richard
Clarida,
Fed 11% 64% 14% 11%
Vice Chair
Randal
Quarles,
Vice Chair 21% 63% 5% 12%
for Bank
Supervision
Raphael
Bostic,
Atlanta 9% 43% 27% 20%
Fed Pres

Mary Daly,
San Fran 7% 19% 40% 35%
Fed Pres

Michelle
Bowman, 5% 51% 44%
Nominee

Marvin
Goodfriend, 48% 17% 12% 24%
Nominee

Nellie
Liang, 5% 53% 2% 40%
Nominee

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

11. Which statement best captures your view of an


inversion of the 2-10 yield spread?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

The low level of the


fed funds rate and
central bank quantitative
easing mean an inversion 39%
will not signal a recession
the way it once did

An inversion this time


will offer the same
recessionary signal 57%
it has in the past

Don't know/unsure 4%

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FED SURVEY
September 25, 2018

12. The current low level of the 2-10 yield spread:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Is signaling
a recession 0%

Is close to
signaling a 17%
recession

Does not
signal a 76%
recession

Don't know/
unsure 7%

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FED SURVEY
September 25, 2018

13. Where do you expect the S&P 500 stock index will
be on … ?

December 31, 2018 December 31, 2019

3,200

3038
3005
2975
3,000
2946
2928
2879 2956
2937
2862 2892
2,800 2839 2848

2775 2787

2708

2,600

2588 2593
2555 2564 2562

2480
2,400 2453

2,200

2,000

1,800
Dec Jan Mar May Jun Jul Sep Oct Dec Jan Mar May Jun Jul Sep
13 31 14 2 13 25 19 31 12 30 20 1 12 31 25
2017 2018
Survey Dates

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

14. What do you expect the yield on the 10-year


Treasury note will be on … ?

December 31, 2018 December 31, 2019

4.0%

3.54%3.54%3.51%3.53%
3.44%3.43% 3.44% 3.45%
3.5%
3.37%

3.24% 3.24%
3.22% 3.23%
3.17% 3.17%3.15%
3.05%
3.06% 3.07%
3.03%
2.95%
3.0%

2.84%

2.5%

2.0%

1.5%

1.0%
Dec Jan Mar May Jun Jul Sep Oct Dec Jan Mar May Jun Jul Sep
13 31 14 2 13 25 19 31 12 30 20 1 12 31 25
2017 2018
Survey Dates

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

15. Where do you expect the fed funds target rate will
be on … ?
Dec 31, 2018 Dec 31, 2019 Dec 31, 2020

3.1%
2.98% 3.01%
2.87% 2.93%
2.86%
2.90%
2.9%
2.95% 2.98%
2.85% 2.92%
2.73%
2.70% 2.70% 2.87%
2.67% 2.68%
2.7% 2.80%
2.60% 2.67%

2.56%
2.49%
2.5% 2.54%

2.39%
2.34%
2.42% 2.32%
2.29%
2.3% 2.25% 2.24%

2.22% 2.19%
2.17%
2.15% 2.14% 2.23%

2.1% 2.10% 2.03%

2.07% 2.06%
2.06%
2.02%
1.87%
1.9%
1.81%

1.78%
1.7%
1.69%

1.5%
Apr Jun Jul Aug Sep Nov Dec Jan Mar May Jun Jul Sep Oct Dec Jan Mar May Jun Jul Sep
26 14 26 24 20 1 13 31 14 2 13 25 19 31 12 30 20 1 12 31 25
2017 2018

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FED SURVEY
September 25, 2018

16. At what fed funds level will the Federal Reserve stop
hiking rates in the current cycle? That is, what will be the
terminal rate?
4.0%

3.5%

3.30% 3.29%

3.20% 3.24%
3.17%
3.27%
3.11% 3.18% 3.21%
3.06%
3.16%
2.98% 2.95%
3.0% 3.04% 2.94%
2.92%
2.85% 2.94%
2.91%
2.85% 2.73%
2.79% 2.80%
2.65%
2.69%
2.65% 2.64% 2.66%
2.58% 2.48%
2.5% 2.56%

2.42% 2.44%

2.29%

2.0%
Sep 16

Jul 28

Jul 26

Sep 20

Jul 25
Sep 19

Jul 31
Sep 25
Apr 28

Apr 26
Sept 16

May 2

May 1
Jan 26 '16
Aug 20

Dec 16
Jan 27, '15
Mar 17

Aug 25

Dec 15

Mar 15

Aug 24

Dec 13
Jan 31 '17
Mar 14

Dec 12
Jan 30 '18
Mar 20
Jun 16

Jun 14

Nov 1

Jun 13

Jun 12
Oct 28

Oct 27

Oct 31

Survey Dates

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

17. Will the Fed raise rates above its neutral rate to slow
the U.S. economy?

Jun 12 Jul 31 Sep 25


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

62%

Yes 53%

58%

32%

No 43%

33%

5%
Don't
know/ 5%
unsure
9%

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FED SURVEY
September 25, 2018

18. When do you believe fed funds will reach its


terminal rate?

2017 2018 2019


Survey date
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Aug 20, 2014 Q4
Sept 16 Q3
Oct 28 Q4
Dec 16 Q1
Jan 27, 2015 Q1
Mar 17 Q4
Apr 28 Q1
June 16 Q1
July 28 Q2
Aug 25 Q3
Sept 16 Q1
Oct 27 Q3
Dec 15 Q1
Jan 26, 2016 Q2
Mar 15 Q3
Apr 26 Q4
Jun 14 Q4
Jul 26 Q4
Aug 24 Q4
Sept 20 Q4
Nov 1 Q1
Dec 13 Q2
Jan 31, 2017 Q2
Mar 14 Q2
May 2 Q2
June 13 Q2
Jul 25 Q2
Sep 19 Q2
Oct 31 Q3
Dec 12 Q3
Jan 30, 2018 Q3
Mar 20 Q3
May 1 Q3
Jun 12 Q4
Jul 31 Q4
Sep 25 Q4

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

19. What is your forecast for the year-over-year


percentage change in real U.S. GDP for …?
2018 2019

3.2%

2.99%
3.0% 2.94% 2.94%
2.93%

2.85%
2.85% 2.82%
2.80%
2.78%
2.8% +2.76%+2.75%
2.76%

2.61% 2.72%
2.70%
2.6% +2.62% 2.66% 2.66%
2.60%

+2.58%

2.4% +2.45% 2.45%

2.2%

2.0%

1.8%
Jan 31 Jan 30
Dec 13 Mar 14 May 2 Jun 13 Jul 25 Sep 19 Oct 31 Dec 12 Mar 20 May 1 Jun 12 Jul 31 Sep 25
'17 '18
2018 +2.76%+2.75%+2.62%+2.58%+2.45% 2.45% 2.60% 2.61% 2.85% 2.94% 2.76% 2.82% 2.93% 2.94% 2.99%
2019 2.85% 2.70% 2.72% 2.66% 2.80% 2.66% 2.78%

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FED SURVEY
September 25, 2018

20. What is your forecast for the year-over-year


percentage change in the headline U.S. CPI for …?
2018 2019

2.8%

2.64%

2.6% 2.57%
2.54%
2.50% 2.51%
2.48%
2.46%
2.44% 2.45%
2.41%
2.48%
2.4% 2.45%
2.38% 2.42%
2.40%

2.28% 2.32% 2.32%


2.30%
2.2%
2.23%

2.15% 2.14%

2.0%

1.8%

1.6%
Dec Jan Mar May Jun Jul Sep Oct Dec Jan Mar May Jun Jul Sep
13 31 14 2 13 25 19 31 12 30 20 1 12 31 25
2017 2018
Survey Dates

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

21. What do you expect the U.S. unemployment rate will


be for:

2018 2019

4.00%

3.84%
3.81%
3.80%
3.74%
3.79%

3.67%
3.60% 3.64%

3.40%

3.20%

3.00%
Jun 12 Jul 31 Sep 25
Survey Dates

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

22. What is the single biggest threat facing the U.S.


economic recovery? (Percentage points)

Outcome of US presidential election


European recession/financial crisis

Terrorist attacks in the U.S.

Protectionist trade policies

Overvaluation of equities
Tax/regulatory policies

Trump's temperament
Global econ weakness
Rise in interest rates

Don't know/unsure
Immigration policy

Fed policy mistake


Slow wage growth
Geopolitical risks

Worker shortage
Slow job growth

Debt ceiling
Deflation
Inflation

Deficits

Other
Survey Date
Apr 30 2 3 2 1
‘13 0 1 0 0 2 2 1 0
1 2 2 1
Jun 18 5 8 0 3 3 0 3 0
3 2 1 1
Jul 30 8 0 2 0 2 2 0 4 4
2 2 1
Sep 17 4 7 2 2 0 4 8 7 2
2 2 1
Oct 29 8 9 4 3 3 3 8 3 0
3 2 1
Dec 17 5 2 9 2 0 2 5 2 2
Jan 28 2 3 1 2
'14 7 1 0 2 0 0 2 1 0
1 2 2 1
Mar 18 0 3 6 3 5 0 5 8 0
2 2 1 1
Apr 28 3 6 1 3 5 0 8 8 3 0
1 2 1 1 1 1
Jul 29 2 9 2 6 3 0 2 2 2 3
2 2 1 1
Sep 16 6 6 9 6 3 0 6 1 1 3
3 1 1 1
Oct 28 1 8 5 3 3 0 0 8 8 3
4 1 1 1
Dec 16 0 4 4 3 6 0 3 4 3 0

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

Outcome of US presidential election


European recession/financial crisis

Terrorist attacks in the U.S.

Protectionist trade policies

Overvaluation of equities
Tax/regulatory policies

Trump's temperament
Global econ weakness
Rise in interest rates

Don't know/unsure
Immigration policy

Fed policy mistake


Slow wage growth
Geopolitical risks

Worker shortage
Slow job growth

Debt ceiling
Deflation
Inflation

Deficits

Other
Survey Date
Jan 27 1 1 4 1
'15 0 3 9 0 0 0 6 6 1 6 6 0
1 2 1 1
Mar 17 6 4 0 3 6 0 6 8 8 7 4 0
1 1 2 1
April 28 3 1 8 3 0 0 6 1 8 8 9 3
1 1 2 2 1
Jun 16 3 7 3 0 0 0 4 5 2 6 1 0
2 1 2
Jul 28 6 1 9 0 0 0 2 6 9 9 9 0
1 4 1
Sept 16 0 6 2 0 4 0 0 8 5 8 4 2
1 4 1
Oct 27 0 8 5 3 8 0 8 3 1 0 5 0
1 1 4 1
Dec 15 0 0 5 0 0 0 8 0 4 5 3 5 0
Jan 26 1 4 2
'16 0 0 5 0 3 0 0 5 4 8 0 3 3
2 3 2
Mar 15 5 1 3 0 0 0 5 5 3 5 0 3 1 0
2 3 1
Apr 26 0 2 2 2 2 0 0 7 6 9 0 7 1 2
2 2 1 1
Jun 14 0 8 5 3 0 0 3 0 8 8 0 5 3 0 0
2 1 2
Jul 26 2 0 7 2 2 0 2 0 2 7 0 7 7 7 2
1 3 1 1
Aug 24 3 9 3 3 0 0 3 3 1 3 3 6 4 1 0
1 1 3 1
Sep 20 0 6 1 3 0 0 0 3 0 8 5 5 8 1 0

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FED SURVEY
September 25, 2018

Outcome of US presidential election


European recession/financial crisis

Terrorist attacks in the U.S.

Protectionist trade policies

Overvaluation of equities
Tax/regulatory policies

Trump's temperament
Global econ weakness
Rise in interest rates

Don't know/unsure
Immigration policy

Fed policy mistake


Slow wage growth
Geopolitical risks

Worker shortage
Slow job growth

Debt ceiling
Deflation
Inflation

Deficits

Other
Survey Date
2 3
Nov 1 3 7 8 0 3 0 8 3 2 3 0 0 5 8 0
1 2
Dec 13 5 9 2 7 0 0 7 7 9 0 2 7 8 5 2
Jan 31 1 1 5 1
'17 0 5 3 3 0 0 0 3 0 5 0 0 0 1 0 0 0
4 1
Mar 14 0 7 2 2 0 0 0 7 4 7 0 2 4 7 4 3 0
2 2 1
May 2 0 8 3 3 0 0 0 5 4 5 0 0 5 6 8 3 0
2 1 1
Jun 13 0 5 5 5 0 3 0 3 1 8 5 0 0 6 8 8 3 0
1 1 2 1
Jul 25 0 5 5 3 3 0 0 0 3 8 5 0 0 0 5 8 8 0
1 1 3
Sep 19 0 2 2 0 2 0 5 2 7 0 7 2 0 2 2 7 7 0
2 1 1 1
Oct 31 0 7 2 2 0 0 0 5 3 5 0 0 2 9 2 4 9 0
1 1 1 1 1
Dec 12 0 7 5 2 0 0 0 7 2 0 2 0 2 2 7 5 5 2 0
Jan 30 2 1 1
‘18 0 3 3 8 0 0 0 8 8 0 0 0 3 4 5 3 8 8 0
4 1
Mar 20 0 3 3 8 0 0 0 8 0 3 3 0 0 7 3 0 8 6 0
2 2 1 1
May 1 0 0 3 8 0 0 3 2 5 8 0 0 0 3 5 3 1 1 0
1 3 1
Jun 12 3 0 3 1 0 0 0 3 5 5 3 0 0 5 3 0 8 8 4 0
Jul 31 5 1
0 0 3 8 0 0 3 5 5 3 3 0 0 3 3 0 0 0 8 0

CNBC Fed Survey – September 25, 2018


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Sep 25
Survey Date

Page 27 of 38
2
European recession/financial crisis

2
Tax/regulatory policies

Other responses:
Slow job growth

9
Inflation

EM-driven credit pullback


Deflation

0
Debt ceiling

2
Deficits

Debt, including unfunded liabilities


FED SURVEY

2
Rise in interest rates
7
Geopolitical risks

CNBC Fed Survey – September 25, 2018


September 25, 2018

Global econ weakness


0

Slow wage growth


2

Terrorist attacks in the U.S.


0

Immigration policy

Outcome of US presidential election


6
2

Protectionist trade policies


(land and labor)
4

Trump's temperament
0

Overvaluation of equities
4

Worker shortage
2
2

Fed policy mistake


9

Other
2

Supply constraints in housing market

Don't know/unsure
FED SURVEY
September 25, 2018

23. In the next 12 months, what percent probability do


you place on the U.S. entering recession? (0=No chance
of recession, 100=Certainty of recession)
40%

36.1%

This survey:
35%
34.0% 14.4%

30%
28.5% 28.8%

26.0%
25.9% 25.3%
25.5%
25% 24.4%
23.5%
22.9%24.1% 23.2%

22.1%
22.2%
20.6% 21.6%
20.4% 21.1% 19.3%
20%20.3% 18.9%
18.8%
18.2% 18.4% 18.5%
17.3% 18.6% 18.1%
19.1%
16.9% 16.9% 16.8%
17.6% 16.2% 16.4% 17.4% 16.5%
16.7%
15.1% 16.4%
16.2%
15% 15.1%
15.3% 15.0% 14.9%
15.2% 15.2%
14.6% 14.7%
13.6% 14.4%
13.7%
13.0%
13.8%
14.3%

10%
Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18
Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17
Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17
Feb-12
Apr-12

Feb-13
Apr-13

Feb-14
Apr-14

Feb-15
Apr-15

Feb-16
Apr-16

Feb-17
Apr-17

Feb-18
Apr-18
Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

24. What is your primary area of interest?

Other
17%
Currencies
0%

Fixed Income Economics


17% 50%

Equities
15%

Comments:

John Augustine, Chief Investment Officer, Huntington Bank:


The most important event for 2019: we can use cash again in client
accounts for the first time in 9 years, and be able to cover the
inflation rate.

Jim Bianco, President, Bianco Research: Inflation expectations


are driving Fed policy and the Fed assumes they are going higher. If
expectations do not rise, the yield curve inverts (long rates hold
steady as the Fed keeps hiking). This is a market signal they have
the wrong policy. But Fed officials have gone out of their way to
explain away the yield curve. This is how policy mistakes are made.

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

Peter Boockvar, Chief Investment Officer, Bleakley Advisory


Group: The stock market is betting that the Fed can pull off a soft
landing as we get deeper into this tightening cycle. I hope they can,
but their track record is awful and this tightening comes after the
greatest experiment of easing ever seen.

Kathy Bostjancic, Head of U.S. Macro Investor Services,


Oxford Economics USA: The unified consensus within the FOMC up
until recently is now breaking into hawkish and dovish camps. The
number of current voting members in the hawkish camp is rising and
far outnumbers those in the dovish camp. However, importantly
Chair Powell looks to be in the dovish camp which could present an
early and critical test of his leadership of the FOMC.

Tony Crescenzi, EVP, Member of Investment Committee,


PIMCO: There is a very useful historical example that is one of the
better ones for projecting the outlook for U.S. rates over the next 1-
3 years. It is the Fed's last rate-hike cycle, particularly late 2004 to
early 2006. During that time, markets were priced for the Fed to
stop its hikes at a little over 4%. As a result, just like today, the U.S.
10-year hovered near the expected peak for the policy rate, and it
stayed there for almost 18 months. By early 2006, market
participants changed their mind and began expecting the Fed to keep
going and to ultimately stop at 5.25%, which it did. The U.S. 10-
year, by no coincidence, peaked at 5.30%. With this historical
example in mind, this means that the U.S. bond market will reach a
decision point sometime in the next year, when market participants
will have to decide whether the Fed will go beyond current market
pricing. If and when it does, U.S. Treasuries will move higher. That
said, the notion that central banks will keep their policy rates below
historical norms -- an idea that PIMCO calls the New Neutral --
remains the appropriate anchor for valuing fixed-income and other
assets.

CNBC Fed Survey – September 25, 2018


Page 30 of 38
FED SURVEY
September 25, 2018

John Donaldson, Director of Fixed Income, Haverford Trust


Co.: Fed funds increases in September and December are as certain
as certain can be. Their real challenge starts after the first increase
in 2019, which will bring the rate to 2.75%, or finally back to even to
inflation. Do they then raise the funds rate to a positive real rate or
not?

Bill Dunkelberg, Chief Economist, National Federation of


Independent Business: The biggest constraint on growth now is
supply side issues, especially in construction and manufacturing.

Bob Eisenbeis, Chief Monetary Economist, Cumberland


Advisors: Fiscal uncertainty is alive and well and the failure to deal
with growth in entitlements is the economy's greatest risk.

Mike Englund, Chief Economist, Action Economics, LLC: The


Fed will likely start to get "cold feet" with its return to a neutral
policy stance early in 2019, in the face of escalating tariffs, and the
pace of policy tightening will moderate.

CNBC Fed Survey – September 25, 2018


Page 31 of 38
FED SURVEY
September 25, 2018

Robert Fry, Chief Economist, Robert Fry Economics LLC: On


question 8, you should have offered another option: Tariffs are
mostly a political tool. In the end, Trump will negotiate deals that
aren't that different from the status quo* and that don't affect the
trade deficit very much. But he will take (and get) credit for fighting
for U.S. manufacturing workers and getting them a "better deal."
(*China might be an exception. If Trump gets concessions on
intellectual property and forced technology transfer, it could increase
the competitiveness of U.S. companies.) On question 11, I'm
disappointed that you choose to focus on the 2-10 spread. Research
at the Fed and the Federal Reserve Banks of NY and SF (and my own
work) indicates that you should use the spread between 10-year
bond yields and either 3-month T-bills or the federal funds rate. The
whole curve matters. The 2-10 spread is used by market analysts
who want to scare people. Most economists use either 10-FFR or
10-3MTB.

Dennis Gartman, Editor/Publisher, The Gartman Letter: The


president should be remembered for his cuts in regulations that
served the economy so poorly for years but instead will be
remembered for his illogical, un-economically justifiable support for
trade protection and tariffs. How sad is that?

Kevin Giddis, Head of Fixed Income Capital Markets, Raymond


James Financial: We are at the near-term crossroads for long-
dated interest rate rates. Either we confirm a trend change to the
level of inflation which will prompt the Fed to raise rates two more
times this year, prompting the bond doves to throw in the towel or
we will confirm that last month's inflation data was a one-month
event, allowing long rates to fall back, and prolong the conversation
of rising prices once again.

CNBC Fed Survey – September 25, 2018


Page 32 of 38
FED SURVEY
September 25, 2018

Stuart Hoffman, Senior Economic Advisor, PNC Financial: Yield


curve inversion between 3-month and 10-year Treasury rates will
signal recession starting in the coming year. The curve will invert by
the 10-year moving down to below the 3-month rate in first half of
2020.

Art Hogan, Chief Market Strategist, B. Riley FBR: We are in


jeopardy of watching trade and monetary policy plunge into a head-
on collision, with no one wearing seat-belts, and the airbags have
been disabled. Both the Fed and the administration are leaning
against a strong economy to reach their respective objectives,
unaware that they are in many ways mutually exclusive. The biggest
risk in the market is a policy mistake, and we are working on a two-
for-one special.

John Kattar, Chief Investment Officer, Ardent Asset


Management: Strong recent jobs, unemployment, and wage data
virtually guarantee hikes in September and December. After that,
the Fed will need to start worrying about the effect of higher rates on
exploding fiscal deficits.

Ed Keon, Chief Investment Strategist, QMA, a PGIM Company:


The U.S. economy and stock market have performed admirably in
2018 so far. The key to sustaining a high level of performance will be
a continuation of the Q2 surge in productivity. If we are in a new,
high productivity regime, the economic expansion and bull market
might continue for years, a la 1995-1999. If not, growth will likely
slow in the second half of 2019 as fiscal pulse fades and Fed
tightening starts to bite. Let’s hope the productivity rebound has
legs!

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

Jack Kleinhenz, Chief Economist, National Retail Federation:


Rarely are so many economic gauges of the U.S. economy so strong
- including employment, income, retail sales, business spending,
manufacturing and small business. The near-term outlook appears to
be steady as she goes.

Barry C. Knapp, Senior MD Macro and Public Policy Strategy,


Guggenheim Securities: The 1971 and 1985 trade wars with
Japan and Germany ended with currency agreements. A political
solution where China agrees to reverse the 9 1/2% decline in the
renminbi since the first tariffs were introduced in March, a timeline to
open their capital account further, along with giving up their
emerging nation status in the WTO, is our most probable outcome.

David Kotok, Chairman and Chief Investment Officer,


Cumberland Advisors: "In a Trade War the guns are pointed
inward." This famous quote is correct. So far, Trump has reversed a
third of his tax/repatriation/deregulation gains. His folly is reversing
the other two-thirds.

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

Subodh Kumar, President, Subodh Kumar & Associates:


Despite foggy clarity for politics, global economies facing trade
pressures and company management therein, we believe the Federal
Reserve is behind the curve and so needs to raise rates steadily well
into 2019. Diplomacy and markets are not often discussed in one
breath, but obfuscation can often underscore complacency. It should
be of more than passing investor interest. Politics, trade wars,
massive war games and actual conflict like in the Levant indicate a
political economy environment not seen for decades. Political
aspects include imminent elections in the U.S., policy differences in
Europe, severe problems in Latin America and many facet
developments in Asia. Markets have alternated between momentum
and taking a bruising in the erstwhile momentum favorites.
Appearing also is bifurcation in financial services when considered
globally. Freewheeling Hong Kong markets have had downdraft and
a reputation for being sensitive to change. We favor quality as well
as cash reserves for redeployment later.

Guy LeBas, Chief Fixed Income Strategist, Janney


Montgomery Scott: With the impending September rate hike, the
Fed will be breaching above the waves, and overnight rates will be
above the lower estimates of "neutral." From that point, it's a 6 to
12-month lag before the FOMC is actively slowing economic growth
with policy. The deceleration and decline in auto sales that comes
alongside higher financing costs from Fed rate hikes is a signal of
what's to come.

Drew T. Matus, Chief Market Strategist, MetLife Investment


Management: The U.S. economy remains on solid footing.
Sustained growth near 3% coupled with rising productivity should
encourage market participants to rethink their view of the terminal
rate.

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

Rob Morgan, Chief Investment Officer, Sethi: The narrow


spread between the 2-year and 10-year Treasury - often a harbinger
of recession - should be a worry for the Fed.

Chad Morganlander, Portfolio Manager, Stifel Nicolaus


(Washington Crossing Advisors): The Federal Reserve will
continue to follow the playbook, with additional rate increases and a
reduction of their balance sheet into 2019. The short end of the
curve is starting to become an attractive investment alternative vs
risk assets.

Joel L. Naroff, President, Naroff Economic Advisors: As long as


inflation continues to slowly accelerate, it makes no sense for the
Fed to do anything but continue to raise rates. I expect that to
happen through 2019.

Lynn Reaser, Chief Economist, Point Loma Nazarene


University: The Fed, as it tightens policy, finds itself in a lonely
spot. While trying to stabilize the U.S. economy, it increasingly risks
destabilizing the rest of the world, especially emerging markets.
While not intentionally, the Fed is also countering the
administration's efforts to reduce the trade deficit through tariffs and
new trade agreements. A stronger dollar, stemming from higher
interest rates, is boosting imports and dampening exports,
frustrating those focused on cutting the trade deficit.

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

Chris Rupkey, Chief Financial Economist, MUFG: Nothing but


nothing is getting this market down. It speaks to the underlying
strength of this long economic expansion that none of these news
headlines coming out of Washington, either trade tariffs or Supreme
Court nominations or impeachment talk or mid-term elections
turnover, nothing is getting stock market investors down. Companies
have money in their pockets from the biggest corporate tax
giveaway in history and as long as that money is there they are
gonna spend it on new investment and new jobs, great big stock
buybacks, and it's all going to help make the stock market just move
higher. The stock market is the leading of leading indicators and if
they are not worried about the outlook then there's no material risk
out there on the horizon to stop this long expansion in its tracks.

Richard I. Sichel, Senior Investment Strategist, The


Philadelphia Trust Company: Stocks can continue to be the
investment of choice for long-term investors. Corporate earnings are
strong, companies are very productive and consumers are confident
in their future as it relates to employment and entrepreneurship. We
need the Fed to proceed toward normalization at a reasonable rate of
increase and the politicians to agree on an infrastructure bill.

Allen Sinai, Chief Global Economist and Strategist, Decision


Economics: The Federal Reserve is undergoing a sea change in
thinking about the theory and practice of monetary policy.

Hank Smith, Co-Chief Investment Officer, Haverford Trust


Company: In the early 1990s, the bond vigilantes held sway. Today
it's the stock market vigilantes. Trump's obsession with the stock
market will insure he does not go overboard with tariffs.

CNBC Fed Survey – September 25, 2018


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FED SURVEY
September 25, 2018

Diane Swonk, Chief Economist, Grant Thornton: The Fed is now


chasing the neutral rate up, while waiting for the slow but corrosive
effects of a trade war to show up in the data. This ups the ante that
the Fed will overshoot on rates as it shifts from removing
accommodation to tightening. The BoE reaction to Brexit provides a
cautionary tale to the Fed. If you get too aggressive too soon on
rhetoric and reaction you lose credibility and become even more of a
political target.

Mark Vitner, Managing Director & Senior Economist, Wells


Fargo Securities: The one risk that I worry about is the economy
appears to be in such great shape that the Fed may opt to move a
little more aggressively. I think that may prove to be a mistake, as
much of the exuberance in the economy is built around expectations
that the Fed will raise rates slowly. It’s tough to choke off the
exuberance without killing the expansion.

Scott Wren, Senior Global Equity Strategist, Wells Fargo


Investment Institute: Modest GDP growth (calendar year) and
only slightly higher inflation should be supportive of stocks but the
SPX is at or near "fair value" for this point in time. Look for 7%
approx. rise over the next 15 months as earnings growth slows to
8% or so in 2019. Besides the Fed making a mistake, a slowdown in
global growth is also a meaningful risk. Stick with sectors sensitive
to a continuation of the recovery. While in the last third of the cycle,
it is too early to get defensive.

CNBC Fed Survey – September 25, 2018


Page 38 of 38