FED SURVEY

March 16, 2012
These survey results represent the opinions of 67 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 March 13 after the Federal Reserve’s meeting statement was released, and on March 14-15, 2012. 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. Will there be another Federal Reserve quantitative easing program in the next year (12 months)?
July 20 Survey October 31 Survey August 11 Survey January 23 Survey September 19 Survey March 16 Survey

19%
Yes

34% 33% 37%

46% 48% 48% 68% 59% 63%

No

46% 44% 13% 17% 7% 7% 8% 4%

Don't know/unsure

CNBC Fed Survey – March 16, 2012
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FED SURVEY
March 16, 2012 2. For those respondents who replied ‘Yes’ to question #1: How large do you expect the new quantitative program will be over the next year (12 months)? Please do not include reinvestment of maturing securities.
July 20 Survey October 31 Survey $700 August 11 Survey January 23 Survey September 19 Survey March 16 Survey

$600

$628 $567 $527 $457 $377 $448

$500

$400

$300

$200

$100

$0 Average (In Billions)

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FED SURVEY
March 16, 2012 3. For those respondents who replied ‘Yes’ to question #1: At which meeting of the Federal Open Market Committee do you think the Fed is most likely to announce a new QE program?
January 23 Survey 0% January 2012 10% 20% March 16 Survey 30% 40% 50%

3% 33% 22% 18% 28% 45% 8% 9% 6% 9% 0% 9% 0% 9% 0%

March

April

June

July

September

October

December 2012

2013

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FED SURVEY
March 16, 2012 4. Which, if any, of the following additional actions do you think the Fed will take to drive down long-term yields?
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Extend Purchase Reduce the 'Operation additional interest rate Twist' long-term paid on beyond June securities but excess sterilize reserves those purchases None Other

43% 39%

25%

11%

12%

Respondents were able to select more than one response, so percentages total more than 100%

Other responses:
     Open market operations QE but sterilized Buy MBS (2) Please, no more. Move AWAY from the printing press. The Fed does not want to drive down long yields from recent levels.

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FED SURVEY
March 16, 2012 5. Do you expect the Federal Reserve to keep interest rates exceptionally low through late 2014?
60%

57%
50%

40%

40%

30%

20%

10%

3%
0% Yes No Don't Know/Unsure

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FED SURVEY
March 16, 2012 6. Relative to current fundamentals, the Federal Reserve's characterization of the economy in its policy statement is:
70%

63%
60%

50%

40%

33%
30%

20%

10%

5%
Too pessimistic Just right Too optimistic

0%

0%
Don't know/unsure

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FED SURVEY
March 16, 2012 7. In your opinion, how does the publication of FOMC members' interest rate forecasts affect the clarity of its monetary policy?
35%

33%

30%

29%

25%

21%
20%

17%
15%

10%

5%

0% More clear Less clear No impact Too soon to tell

0%
Don't Know/Unsure

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FED SURVEY
March 16, 2012 8. Should the Fed change its guidance for how long it will keep interest rates low from a calendar date to economic targets, such as inflation, unemployment, or nominal GDP?
October 31 Survey 70% January 23 Survey March 16 Survey

60% 57% 50% 50% 49% 46% 45% 36% 30%

40%

20%

10% 7% 0% Yes No 4% 6%

Don't Know/Unsure

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FED SURVEY
March 16, 2012 9. (For those who answered yes to question 8) What target or targets should the Fed use?
October 31 Survey 100% January 23 Survey March 16 Survey

90% 86% 80% 76% 73%

70%

60%

50% 47% 40% 41% 33%

50% 42% 33%

30%

20%

10% 5% 5% Inflation Unemployment Nominal GDP

12%

0%

Other

Respondents were able to select more than one response, so percentages total more than 100%

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FED SURVEY
March 16, 2012 10. How would you characterize the Fed's current monetary policy?
July 20 Survey October 31 Survey 0% August 11 Survey January 23 Survey 10% 20% 30% September 19 Survey March 16 Survey 40% 41% 26% Too accommodative 39% 34% 37% 53% 52% 52% Just right 40% 48% 45% 38% 3% 12% 12% 10% 12% 6% 5% 10% 9% 8% 5% 4% 50% 60%

Too restrictive

Don’t know/Unsure

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FED SURVEY
March 16, 2012 11. Where do you expect the S&P 500 stock index will be on … ?
July 20 Survey Oct 31 Survey Aug 11 Survey Jan 23 Survey Sept 19 Survey March 16 Survey

1421 1310
June 30, 2012

1312 1358 1329 1397

December 31, 2012

1387 1436
This is the second survey in which we asked for a December 31, 2012 forecast.

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FED SURVEY
March 16, 2012 12. What do you expect the yield on the 10-year Treasury note will be on … ?
July 20 Survey Oct 31 Survey Aug 11 Survey Jan 23 Survey Sept 19 Survey March 16 Survey

3.75% 2.99%
June 30, 2012

2.59% 2.77% 2.19% 2.32%

December 31, 2012

2.52% 2.59%
This is the second survey in which we asked for a December 31, 2012 forecast.

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FED SURVEY
March 16, 2012 13. What is your forecast for the year-over-year percentage change in real U.S. GDP?
July 20 Survey October 31 Survey August 11 Survey January 23 Survey September 19 Survey March 16 Survey

+2.85% +2.47%
2012

+2.24% +2.37% +2.45% +2.46%

2013

+2.59% +2.74%
This is the second survey in which we asked for a 2013 forecast.

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FED SURVEY
March 16, 2012 14. When do you think the FOMC will first increase the fed funds rate?
Jan 23 Survey 0% 2012 - Q1 Q2 Q3 Q4 2013 - Q1 Q2 Q3 Q4 2014 - Q1 Q2 Q3 Q4 2015 or later Don't know/unsure 3% 0% 4% 3% 4% 10% 9% 10% 5% 0% 1% 1% 8% 9% 7% 15% 11% 11% 11% 14% 15% 13% 14% 18% 5% March 16 Survey 10% 15% 20%

0% 2%

6%

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FED SURVEY
March 16, 2012 15. When do you think the Federal Reserve will make its first planned decrease in the size of its balance sheet?
January 23 Survey 0% 2012 - Q1 Q2 Q3 Q4 2013 - Q1 Q2 Q3 Q4 2014 - Q1 Q2 Q3 Q4 2015 or later Don't know/unsure 3% 4% 4% 0% 3% 2% 3% 0% 10% 9% 12% 11% 9% 11% 13% 11% 9% 2% 3% 4% 1% 2% 18% 16% 10% 14% 20% 5% March 16 Survey 10% 15% 20% 25%

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FED SURVEY
March 16, 2012 16. Where do you expect the fed funds target rate will be on … ?
July 20 Survey Oct 31 Survey Aug 11 Survey Jan 23 Survey Sept 19 Survey March 16 Survey

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

0.47%
June 30 2012

0.13% 0.16% 0.22% 0.14% 0.14% 1.01%

Dec 31 2012

0.25% 0.27% 0.35% 0.20% 0.23%

June 30 2013

0.41% 0.42%

This is the second survey in which we asked for a June 30, 2013 forecast.

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FED SURVEY
March 16, 2012 17. 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)
45%

Average Probability of Recession
40%

35%

30%

Aug 11 Survey: 34.0% Sept 19 Survey: 36.1% Oct 31 Survey: 25.5% Jan 23 Survey: 20.3% Mar 16 Survey: 19.1%

25%

20%

15%

10%

5%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aug 11 Survey

Sept 19 Survey

Oct 31 Survey

Jan 23 Survey

March 16 Survey

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FED SURVEY
March 16, 2012 18. What is your outlook for the European Monetary Union five years from now?
July 21 Survey Oct 31 Survey 0% Jan 23 Survey March 16 Survey

10% 20% 30% 40% 50% 60% 70% 80%

No countries will be ejected or leave

42% 47% 24% 29% 53% 52% 63% 69% 0% 2% 6% 0% 5% 0% 8% 2%

Some countries will be ejected or leave

It will be largely dissolved and most European countries will have their own currency

Don't know/unsure

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FED SURVEY
March 16, 2012 19. What is the probability, in your opinion, that each of the following countries will default on its debt in the next three years? (0%=No chance of default, 100%=Certainty of default)
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Portugal July 20 Survey Aug 11 Survey Sept 19 Survey Oct 31 Survey Jan 23 Survey March 16 Survey 52% 45% 41% 47% 49% 53% Ireland 48% 37% 34% 33% 33% 31% Italy 24% 23% 23% 28% 28% 25% Greece 83% 70% 82% 84% 88% 72% Spain 28% 25% 24% 26% 30% 29% 2% 2% 2% 2% 2% 3% 4% 4% 6% 5% Germany France

United States 4% 2% 1% 2% 1% 3%

United Kingdom 2% 2% 3% 2% 3%

Germany, France, and United Kingdom were not included in the July 20 survey. For Greece, respondents to the March 16 survey were asked for the probability of a second default beyond the March ‘credit event.’

CNBC Fed Survey – March 16, 2012
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FED SURVEY
March 16, 2012 20. What is the single biggest threat facing the U.S. economic recovery?
0% European recession/financial crisis 5% 10% 15% 20% 25% 30% 35% 40%

17% 36% 4% 26% 4% 2% 11%

Tax/regulatory policies

Slow job growth

High gasoline prices

Overall inflation

Don't know/unsure

Other:

Other responses:       Geopolitical Risks U.S. Private Debt Deleveraging Weak nominal growth/restrictive monetary policy "Fiscal cliff" Excessive debt Sluggish/nonexistent real income growth

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FED SURVEY
March 16, 2012 21. What is the chance that high oil prices cause another U.S. economic recession? (0%=No chance of recession, 100%=Certainty of recession)
35%

30%

Average Probability

Mar 16 Survey: 23.8%
25%

20%

15%

10%

5%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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FED SURVEY
March 16, 2012 22. What is your primary area of interest?

Currencies 2% Fixed Income 7%

Other 17%

Economics 50% Equities 24%

Comments:
John Augustine, Fifth Third Asset Management: Fed needs to start formulating an exit plan. Lou Brien, DRW Trading Group: Believe it if you need it, if you don't just pass it on. P. Lesh R. Hunter Robert Brusca, Fact and Opinion Economics: Fed policy is not so out-ofkilter now but we are on an important cusp. How will the Fed use its new headline PCE inflation 'objective?' We are about to see headline inflation go more rogue than Sarah Palin, as growth gets more solid. How does the Fed get us to believe its policies are on track if it can't point to still stable core inflation since the headline is now the goal? I'm confused as to how a target that will be badly missed in the short run becomes useful, especially since it is NOT even a price level commitment. I think that the Fed, and the markets, are in for some rocky times. David Goerz, Highmark Capital: The Fed's current monetary policy is unsustainable beyond the U.S. election, and risks undermining its credibility CNBC Fed Survey – March 16, 2012
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FED SURVEY
March 16, 2012
through its policy of "increased transparency" given the strengthening divergence of economic conditions. "Output gap-ers" are likely to be overrun by "pragmatic vigilantes " as rebounding inflationary forces, housing starts, and employment growth should drive up inflation expectations and bond yields. Stuart Hoffman, PNC: The spring/summer slump in housing, consumer spending, and job growth in 2010 and 2011 will NOT be repeated in 2012. The third time is the charm!! Lee Hoskins, Pacific Research Institute: By continuing to run a negative real interest policy the Fed is distorting one of the most important price signals in an economy. Repressing interest rates misallocates capital and the allocation of goods over time. Hugh Johnson, Hugh Johnson Advisors: The single most substantial threat that the U.S. economy faces is a shift to fiscal restraint in 2013 based upon the possible expiration of tax reductions (Bush tax cuts, reduction in payroll tax cut) and reductions in spending (Medicare payments to physicians, unemployment benefits). A shift toward restraint, similar to shifts in 1910 and 1938, before the U.S. economy has fully recovered from the excesses built during the housing mania (2004-2006) would be a mistake. Hopefully, this will be clearly resolved by the time of the election. The second most significant risk (although not a significant risk at this level of interest rates) is a rise in inflation in 2013 and shift in monetary policy toward restraint. Clearly the Fed understands this risk and is unlikely to make a serious policy blunder. It is not at all unusual for the financial markets and economy to be facing these risks during the fourth and fifth year of a bull market-economic recovery. What raises the risks is that the U.S. economy is still working through the excesses built during the stage of housing speculation. That makes it interesting and important. John Kattar, Eastern Investment Advisors: For as long as the economic data is improving, stocks are moving higher, and other central banks are easy, the Fed is content to sit. But that could change. I am also watching the dollar, which has been strengthening since last Fall. At some point, the Fed will perceive this as a threat to the recovery. CNBC Fed Survey – March 16, 2012
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FED SURVEY
March 16, 2012
Barry Knapp, Barclays PLC: The apparent upgrading of the forecast (expecting moderate vs modest growth) lowers the probability of QE3 in April to effectively zero. June-September is still a real possibility if the outlook slips back to sub-2%. Energy is the most likely near term catalyst for a deterioration in the outlook. David Kotok, Cumberland Advisors: Oil is the biggest risk. Nigeria risk is higher than markets expect. Alan Kral, Trevor Stewart Burton & Jacobsen: The Fed will do everything to re-elect incumbents. Subodh Kumar, Subodh Kumar & Associates: Next challenge is overstating massive quantitative ease, especially in the U.S. and Europe, now in place in advanced countries and moves to ease in emerging majors like Brazil, China, and India distorts risk-reward to detriment of capital markets. William Larkin, Cabot Money Management: The recent change in sentiment in the bond market has a strong possibility of being the start of a new era for bonds. This is likely the end of the 3-year "fear trade" that drove bond yields into negative territory (real returns). The problem going forward is many bond investors do not truly understand their risks, especially the investors who are extending into longer-dated bonds (duration risk). As bond indices generate negative returns this quarter, the positive fund flows should start to abate. The million-dollar question is where, when, and to what extent will this new mindset affect interest-sensitive investments? Guy LeBas, Janney Montgomery Scott: We estimate that for each sustained $5 increase in oil prices, GDP growth declines about 0.2%. Drew Matus, UBS Investment Research: We do not believe the FOMC will undertake further QE absent a significant deterioration in the economic outlook. If further QE were to become necessary, operational limitations would determine the structure. Rob Morgan, Fulcrum Securities: I'm shocked that some market watchers are still talking about another round of quantitative easing. Three months of job growth over 200k jobs indicates to me that the big risk for the Fed is

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FED SURVEY
March 16, 2012
falling behind the inflation curve. There is no way the Fed will fulfill its pledge of keeping rates at present levels until 2014. Chad Morganlander, Stifel Nicolaus (Washington Crossing Advisors): The U.S. economy is moving in the right direction. As private borrowing trends improve, a sustainable economic recovery will take root. Stock market valuations appear attractive. At this point in time, investors should continue to position portfolios toward risk assets. Joel Naroff, Naroff Economic Advisors: The Fed is being cautious given all the risks out there, but once European default issues and gasoline price hike concerns are moderated, the Fed will have to consider lightening up their pessimistic view. Phil Orlando, Federated Investors: The presidential election in November will be critically important, to elect statesmen who will do the right thing with regard to reforming entitlements and tax policy. Lynn Reaser, Point Loma Nazarene University: The economy, stocks, and monetary policy are at a critical juncture. The next two to three months will show how much oil prices will affect consumer spending, how much warmer-than-usual weather has inflated economic activity, and whether real GDP growth will speed up to catch up with job gains or if employment growth will slow in tandem with real GDP. David Resler, Nomura: Recent data are decidedly constructive, and there is now a non-trivial chance that the recovery in employment will become a transformative event, leading to a self-perpetuating recovery. John Roberts, Hilliard Lyons: We continue to worry that rising oil prices, higher interest rates, issues in Europe and political rhetoric will begin to drag the markets down in the near future. The extremely heavy insider selling is also another troubling data point. As such, we anticipate a pullback in the markets in the near future that continues through the election following the recent two quarters (including the current one) of double-digit market increases. John Silvia, Wells Fargo: Economic recovery is sustained.

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FED SURVEY
March 16, 2012
Hank Smith, Haverford Investments: The Fed needs a better mix of fiscal policy - growth oriented tax reform and less regulation - in order to begin shifting toward a more neutral policy. This, in a way, happened in the early 1980s when Reagan's growth fiscal policy allowed Volcker to tighten to kill inflationary expectations. Rod Smyth, Riverfront Investment Group: We are living through Policy Purgatory, or an environment when, other than central banks, fiscal policymakers, especially in the U.S., are totally divided as to how to tackle the biggest economic issue facing the world economy: unsustainable debt. This has resulted in cheap valuations for risk assets such as stocks and lousy prospective returns from safe assets like cash and bonds. Diane Swonk, Mesirow Financial: The key concern is the housing market; structural problems in lending and the MBS market, in particular, could hinder recovery, and continue to mute the effect monetary policy has on economic growth. Peter Tanous, Lynx Investment Advisory: Greece will definitely leave the euro. There is no possibility of recovery under the austerity imposed on them. The euro will rise when Greece leaves. Mark Vitner, Wells Fargo: The bounce back in yields seems to have gotten an extra push from the latest bank stress test. There is less worry about another near-term credit event (either in Europe or the US). Rates may now begin to reflect economic fundamentals. If so, they are still way too low. Scott Wren, Wells Fargo Advisors: Three things continue to keep me up at night: housing, employment, and the euro zone debt crisis. None of these problems are going away anytime soon. Our improved unemployment rate masks underlying structural problems. Home prices are hitting new postbubble lows and the LTRO and Greek restructuring are just band-aiding the problems for now. Clare Zempel, Zempel Strategic: The market monetarists' views (Scott Sumner, et al) are the most relevant for policymakers and investors.

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