CNBC Fed Survey - March 19, 2013

FED SURVEY
March 19, 2013

These survey results represent the opinions 54 of the nations top money managers, investment strategists, and professional economists. They responded to CNBCs invitation to participate in our online survey. Their responses were collected on March 14-15, 2013. 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. For all of 2013, what is the total amount of additional asset purchases the Federal Reserve will have made?
January 29
$1,400 $1,200
March 19
$1,000
$800 $600 $400 $200
$858.8
$927.4
$0
2013
Billlions
CNBC Fed Survey March 19, 2013

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FED SURVEY
March 19, 2013 What mix of Treasuries vs. mortgage-backed securities do you expect the Federal Reserve to purchase?
Treasuries
100%
MBS
90%
80%
47.8%
70%
48.5%
60%
50%
40%
30%
52.2%
20%
51.5%
10%
0%
January 29
March 19

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FED SURVEY
March 19, 2013 3. When do you expect the Federal Reserve will completely stop purchasing assets?
January 29
40%
March 19
Averages
35%
30%
Jan 29: Nov. 2013 Mar 19: May 2014
25%
20%
15%
10%
5%
0% 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 - 2015 or Q4 later

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FED SURVEY
March 19, 2013 4. The Federal Reserve will:

January 29
100%
March 19
90%
89%
80%
76%
70%
60%
50%
40%
30%
22%
20%
10%
8% 2%
4%
0% End its purchases in a single month Gradually reduce (taper) its purchases Don't know/unsure

Page 4 of 37
FED SURVEY
March 19, 2013 (For those who believed the Fed will taper) In what month do you expect the Fed to begin tapering its purchases?
January 29
25%
March 19
Averages
20%
Jan. 29: December 2013 March 19: January 2014
15%
10%
5%
0%

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FED SURVEY
March 19, 2013 5. At what unemployment rate will the Fed halt its asset purchases?
Unemployment Inflation
7%
6%
6.5%
6.8%
6.7%
5%
4%
3.4%
3%
2.6%
2.6%
2%
1%
0%
December 11, 2012
January 29, 2013
March 19, 2013

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FED SURVEY
March 19, 2013 6. When it comes to how you think the Fed will exit from its current monetary policy, do you believe it WILL/SHOULD:
WILL
0% 10%
SHOULD
20% 30% 40% 50% 60%
Sell Treasuries only
4% 6%
Sell MBS only
6% 2%
Sell both
29% 41%
Not sell any assets at all
53%
37%
Don't know/unsure
8% 14%

Page 7 of 37
FED SURVEY
March 19, 2013 7. To what extent have the following factors contributed to the recent rise in the U.S. stock market?
Improvement in the fiscal situation 5%
Improvement in the outlook for corporate earnings 18%
Improvement in the economic outlook 24%
Stabilization in the financial system 12%
Other 12% Don't know/unsure 1%
Increased assets purchases by the Fed 28%

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FED SURVEY
March 19, 2013 8. When it comes to the Feds use of economic targets specifically:
January 29
60%
March 19
50%
48% 45%
40%
38%
30%
28%
28%
20%
10%
10% 4%
0% The Fed is clear The Fed could be more clear
0%
The Fed is not clear Don't know/unsure at all

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FED SURVEY
Comments on Question 8:
March 19, 2013
Robert Brusca, Fact and Opinion Economics: The Fed understands the lack of clarity in its policy and that that is what gives it flexibility. It's not a mistake. John Donaldson, Haverford Trust Co.: For those of us who have been doing this for 35 years, the increased communication and clarity is nothing short of remarkable. Bob Froehlich, The Hartford: The Fed must adopt specific targets, communicate them, and act accordingly so there are no surprises to the market. Stuart Hoffman, PNC: Be clearer about the language "1 to 2 year outlook for inflation." Whose inflation outlook and how measured? Lee Hoskins, Pacific Research Institute: The Fed's reaction function to economic targets is whatever Bernanke wants it to be rather than a rules-based, systematic response. Hugh Johnson, Hugh Johnson Advisors: The Federal Reserve should resist as much as possible adopting specific targets for inflation (too late for that) and economic conditions (GDP, unemployment rate) since it reduces measurably its flexibility in conducting policy. Please review Europe and its specific targets (Maastricht) for deficits, debt, and inflation and the loss of conducting policy in a way that is sensitive to current/existing economic conditions. A clear mistake that led to restraint/austerity. William Larkin, Cabot Money Management: Targeting employment in a global economic environment is ineffective. Guy LeBas, Janney Montgomery Scott: The Fed issuing specific targets and then issuing qualifications of those targets in the same breath is difficult for the market to parse. Donald Luskin, Trend Macrolytics: Who cares what targets they set? They'll rationalize their intuitions when the time comes. Rob Morgan, Fulcrum Securities: In December the Fed was clear that they would not raise rates before unemployment falls below 6.5 percent. Let's hope that they are able to stick to that script.

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FED SURVEY
March 19, 2013

Stanley Nabi, Silvercrest Asset Management: The Fed seems to be signaling that it is in no hurry to change direction or policy and would be willing to err on the side of ease. Lynn Reaser, Point Loma Nazarene University: While the Federal Reserve has been relatively specific about its economic targets regarding changes in the federal funds rate, its guidance about the asset purchase program remains fuzzy. It has only said that asset purchases will continue until the "outlook for the labor market improves substantially...within the context of price stability." It has not defined the triggers for the two aspects of asset purchases--first the decision to stop additional net purchases, i.e., adding to its balance sheet, and second--the decision to stop reinvesting the proceeds of maturing securities. John Roberts, Hilliard Lyons: Unfortunately, while the Fed is attempting to be clear in its commentary, the uncertainty in the economy and potential impact of its moves means the desired outcomes may not be achieved. Diane Swonk, Mesirow Financial: Economic conditions feel significantly better; Fed remains leery of false starts and ongoing shenanigans in DC. Mark Vitner, Wells Fargo: Has the Fed become reactive? Unemployment is a lagging indicator. Shouldn't they be proactive? Scott Wren, Wells Fargo Advisors: Target ranges are better in my opinion than a single number. Clare Zempel, Zempel Strategic: The Fed should adopt nominal GDP targeting.

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FED SURVEY
March 19, 2013 9. Do you believe further quantitative easing can help lower the unemployment rate?
Sept 12, 2012
0% 10%
Dec 11
20%
Jan 29, 2013

30% 40% 50%
March 19
60% 70% 80%
36% 37%
Yes
34% 21%
59% 59%
No
58% 69%
5% 4%
Don't know/unsure
8% 10%

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FED SURVEY
March 19, 2013 Do you believe further quantitative easing can help mortgage rates?
December 11, 2012 0% 10% 20% January 29, 2013 30% 40% March 19 50% 60% 70% 80%
59%
Yes
54% 44%
33%
No
42% 48%
9%
Don't know/unsure
4% 8%

Page 13 of 37
FED SURVEY
March 19, 2013 Do you believe further quantitative easing can help lower bond yields?
December 11, 2012
0% 10% 20%
January 29, 2013

30% 40% 50%
March 19
60% 70% 80%
58%
Yes
47% 44%
30%
No
47% 48%
13%
Don't know/unsure
6% 8%

Page 14 of 37
FED SURVEY
March 19, 2013 Do you believe further quantitative easing can help increase stock prices?
January 29, 2013
0% 10% 20% 30%
March 19
40% 50% 60% 70% 80%
69%
Yes
75%
20%
No
17%
10%
Don't know/unsure
8%

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FED SURVEY
March 19, 2013 10. Since September 2012, market functioning in the government bond market has:
Functioning
0% 10% 20%
Liquidity
30% 40% 50% 60% 70%
Improved a lot
0%
0%
19% 29% 60% 48% 15%
Improved somewhat
Stayed the same
Worsened somewhat
15%
2% 4% 4% 4%
Worsened a lot
Don't know/unsure

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FED SURVEY
March 19, 2013 11. Since September 2012, market functioning in the mortgagebacked security market market has:
Functioning
0% 5% 10% 15%
Liquidity
20% 25% 30% 35% 40% 45%
Improved a lot
4%
4%
31% 21% 29% 40% 20%
Improved somewhat
Stayed the same
Worsened somewhat
19%
2% 0% 14% 15%
Worsened a lot
Don't know/unsure

Page 17 of 37
FED SURVEY
March 19, 2013 12. When it comes to the debate over the U.S. debt ceiling, Congress will:
January 29
100%
March 19
92%
90%
86%
80%
70%
60%
50%
40%
30%
20%
10%
8% 4%
6%
4%
0% Increase the debt ceiling every time it is reached this year Refuse at some point this year to raise it Don't know/unsure

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FED SURVEY
March 19, 2013 13. When it comes to the Sequester, Congress should:
35%
33%
30%
25%
25% 21%
20%
17%
15%
10%
5%
4%
0%
Continue with the current spending cuts Continue with the current level of the spending cuts, but change the makeup Reduce the amount of spending cuts Increase the amount of spending cuts Don't know/unsure
Comments on changing the makeup of spending cuts:

The Sequester cuts were meant to be so draconian that no one in their right mind would let them happen. That they happened tells you all you need to know about Congress's state of mind. Try again to let the president have authority over programs to cut from each department.

Page 19 of 37
FED SURVEY

March 19, 2013

Reduce impact on defense and address entitlements. There's no perfect answer, but having greater flexibility to put the cuts towards entitlements would help limit the short term economic pain. Give discretion to Cabinet secretaries to prioritize cuts. Address the long-term budgetary issues linked to inefficient tax policies, Social Security, Medicare and Medicaid. Backload more cuts in entitlements, including a COLA change for Social Security, to deal with meat of problem. Clearly discretionary spending cuts should be reduced and mandatory cuts should be increased as part of sensible entitlement reform. The measures taken so far in 2013 have resulted in a paltry 10-year cumulative deficit reduction, not the trillions that would be needed to put the federal government on sound long-run fiscal footing. Change the mix to smaller immediate spending cuts and more long-term consolidation that includes entitlements. Spending cuts should be focused more on entitlement programs, which are the core of the U.S. budget problem. Budget caps should be set for discretionary programs rather than arbitrary across-the-board cuts to allow efficiencies to be achieved. Intelligent cuts could prevent a public backlash which could make future efforts at deficit reduction even more difficult. Allow flexibility. Fewer defense spending cuts and more other discretionary spending cuts. There is a lot of overlap between the agencies that could easily be cut in a lot less painful way than cutting air traffic controllers or TSA staff and making air travel even more painful than it already is. Give agencies more discretion to shift money around for now and then write a detailed budget for FY2014 and forward.

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FED SURVEY
March 19, 2013 14. What impact, if any, do you believe recent revenue increases/the Sequester will have on U.S. GDP this year?
January 29
Revenue Increases 0.0%
March 19
The Sequester
-0.5%
-0.5% -0.6%
-0.5%
-1.0%
-1.5%
-2.0%
Note: We did not ask about the Sequester in the January 29 survey.

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FED SURVEY
March 19, 2013 15. When it comes to the budget deficit, the United States:
January 29
90%
March 19
80%
80%
70%
67%
60%
50%
40%
30%
25% 16%
20%
10%
4%
4% 0%
4%
0%
Should urgently Has at least a Does not need to Don't know/unsure enact a plan that couple of years enact a plan that puts it on a path before it must enact puts it on a path toward a such a plan toward a sustainable budget sustainable budget deficit deficit

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FED SURVEY
March 19, 2013 16. When it comes to Europe, do you believe the lack of a current crisis mentality is:
January 29
70%
March 19
62%
60%
64%
50%
40%
30%
30%
29%
20%
10%
8%
8%
0% A sign of real progress Only temporary Don't know/unsure

Page 23 of 37
FED SURVEY
March 19, 2013 17. Where do you expect the S&P 500 stock index will be on ?
July 31 2012 Sept 12 Dec 11 Jan 29 2013 March 19
1589
1539
1547
1497 1480
1505
1451
June 30, 2013
December 31, 2013

Page 24 of 37
FED SURVEY
March 19, 2013 18. What do you expect the yield on the 10-year Treasury note will be on ?
July 31 2012 Sept 12 Dec 11 Jan 29 2013 March 19
2.35%
2.31%
2.09% 2.09% 1.90%
1.98%
2.06%
June 30, 2013
December 31, 2013

Page 25 of 37
FED SURVEY
March 19, 2013 19. What is your forecast for the year-over-year percentage change in real U.S. GDP for ?
January 23, 2012 Sept 12 March 16 Dec 11 April 24 Jan 29, 2013 July 31 Mar 19
2013
+2.59% +2.74% +2.55% +2.26% +2.21% +1.91% +2.08% +2.06%
2014
+2.56% +2.60%

Page 26 of 37
FED SURVEY
March 19, 2013 20. When do you think the FOMC will first increase the fed funds rate?
December 11, 2012 20% January 29, 2013 March 19
18%
Averages:
Dec 11: 2015 - Q1 Jan 29: 2015 - Q1 Mar 19: 2015 - Q1
16%
14%
12%
10%
8%
6%
4%
2%
0%
Dont know/unsure Dec 11 survey: 9% Jan 29 survey: 4% Mar 19 survey: 4%

Page 27 of 37
FED SURVEY
March 19, 2013 21. When do you think the Federal Reserve will make its first planned decrease in the size of its balance sheet?
December 11, 2012 16% January 29, 2013 March 19
Averages
14%
Dec 11: 2014 - Q4 Jan 29: 2015 - Q1 March 19: 2014-Q4
12%
10%
8%
6%
4%
2%
0%
Dont know/unsure Dec 11 survey: 15% Jan 29 survey: 6% Mar 19 survey: 12%

Page 28 of 37
FED SURVEY
March 19, 2013 22. Where do you expect the fed funds target rate will be on ?
Jan 23 2012
Sept 12 0.0% 0.1%
March 16
Dec 11 0.2%
April 24
Jan 29 2013 0.3%
July 31
Mar 19 0.4% 0.5%
0.41% 0.42%
0.27%
June 30 2013
0.20% 0.14% 0.16% 0.16% 0.14%
Dec 31 2013
0.33% 0.27% 0.21% 0.17% 0.19%

Page 29 of 37
FED SURVEY
March 19, 2013 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%
35%
36.1% 34.0%
30%
28.5%
25.9%
25%
25.5% 20.3%
26.0% 20.6% 20.4%
20%
19.1%
15%
17.6%
10%
5%
0% Aug Sept 11, 19 2011 Oct 31 Jan March April 23, 16 24 2012 July 31 Sept 12 Dec 11 Jan 29, 2013 Mar 19

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FED SURVEY
March 19, 2013 24. What is the single biggest threat facing the U.S. economic recovery?
January 29, 2013 0% European recession/financial crisis Tax/regulatory policies Slow job growth High gasoline prices Overall inflation Deflation Debt ceiling Too little budget deficit reduction Too much budget deficit reduction Other Don't know/unsure 5% 10% March 19 15% 20% 25% 30% 35% 40% 45%
10% 10% 29% 12% 20% 42%
0% 0%
2% 4% 0% 2% 2% 0% 6% 6% 10% 16% 12% 16% 0% 2%
If threat means a recession trigger, I would say conflict with Iran and its effect on gas prices A sudden jump in long-term interest rates China falters badly
Other responses: Rise in the dollar Slowdown outside US Geopolitical Risks - Middle East/N Korea Ineffective monetary stimulus Combination of austerity, uncertainty about future policies, and Europe

Page 31 of 37
FED SURVEY
January 29, 2013 25. What is your primary area of interest?

Currencies 2%
Other 10%
Fixed Income 14% Economics 52%
Equities 22%
Comments: John Augustine, Fifth Third Asset Management: Economy is moving forward; Washington is a sideshow; Fed is on autopilot. A very good scenario for stocks. Bob Baur, Principal Global Investors: Believe the US economy is on the verge of getting back its mojo. Looking at the totality of the economic data over the last several months, the key is the continued upside surprise. Part of that is coming from reduced fear and a lot of pent-up demand from consumers for houses, cars, furniture and consumer goods in general that have been foregone during the fear following the financial crisis. Despite all the doom and gloom of the last several years (especially last year), none of the catastrophic problems that the consensus feared were just around the corner ever occurred. The realization that these risks are fading is behind the market rally since last summer.
CNBC Fed Survey January 29, 2013

Page 32 of 37
FED SURVEY
January 29, 2013 Robert Brusca, Fact and Opinion Economics: Biggest issue: DENIAL. Republicans, Democrats, Europeans, Chinese, and markets DENY the potential bad outcomes that are very possible from US and ECB/EU Commisson polices. Markets are marked to optimism. Democrats deny reality of excess spending and WONT fess up that to keep programs you must tax MORE than just the rich (see CBO). Republicans are too hard line on taxes, which do matter but are not such flash points. Its a bargaining position gone bad that is as unhealthy as Democrats denial. Europe is on very thin ice because of Italy and no one seems to see that Italy's new tilt means austerity is OVER in Europe. Dead! Angela has no clue what to do, so she repeats the same old tired phrases. China is struggling to stimulate domestic demand with new leadership. Bellicose foreign policy speaks to its domestic failure. Excesses of the past: one child, pollution, too much trade reliance, are catching up to it. Japan's weak yen policy (denied!) is dangerous. And markets are marked to optimism. Nice. We are living in the age of special effects. It must be Hollywood (Wag the Dog?). Expectations and communication matter more than reality. Tony Crescenzi, PIMCO: Holders of longer dated maturities are slow boiling frogs and the Federal Reserve means to fry them. Mike Dueker, Russell Investments: In question 6, I was not sure where the reverse repurchase facility is represented. I think the Fed should shrink its balance sheet (in 2015) primarily by selling longterm bonds off its books for three months at a time and rolling over those repo agreements and only secondarily by selling long-term bonds outright. This approach should depress bond prices less than outright sales would. In the meantime, the Fed should let the purchases continue at the present pace until October 2013 or thereabouts and then stand pat and maintain its balance sheet until 2015. Mike Englund, Action Economics: It probably isn't a coincidence
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FED SURVEY
January 29, 2013 that consumer confidence and business sentiment have strengthened with the January tax deal and March sequestration. Though sequestration seems unnecessarily clumsy to policy-wonks, the public probably sees the cuts as more egalitarian than if we let Congressmen make micro-decisions themselves on spending. Since polls show that the public wants more rather than less cutting of the budget, the current spending cuts are probably seen as positive, and we may find that the boost to confidence and spending from sequestration has a greater positive GDP impact than the negative direct effect of lower government spending. Bob Froehlich, The Hartford: It is the federal government, not corporate America or individual investors or state and local governments, that needs to get its act together fast before the market eventually collapses bringing down the economy right with it. It's the Federal Government, Stupid! Kevin Giddis, Raymond James/Morgan Keegan: The shift out of safe/liquid assets makes the assumption that the Fed is successful in continuing to improve the housing market and create jobs. The equity market reaction assumes that all the chips are in, on black, with no thought of not winning. To me, there are still too many "unknowns" (like Europe, fiscal issues, and a lack of jobs) to place that bet here. Lee Hoskins, Pacific Research Institute: The Fed's hubris in repressing both long and short-term interest rates is stunning and will lead to wealth losses for many, including the banks that it regulates. Hugh Johnson, Hugh Johnson Advisors: The important point is that the message of the financial markets, collectively confirmed by important monetary and economic data, is that the current stock market-economic-interest rate cycle will continue through 2013 and most likely 2014.
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FED SURVEY
January 29, 2013 John Kattar, Ardent Asset Advisors: The Fed must be encouraged by the effect their policies are having on the markets, housing, and the economy, and will see no need to change what seems to working. Still, they will eventually have to prepare investors for an exit. At some point they will begin to talk about a tapering of QE, although that may not become a reality until next year. Subodh Kumar, Subodh Kumar & Associates: Central bank policy is likely at a fragile interface worldwide. Quantitative easing was seen as positive initially in this credit crisis but now risks being perceived as too manipulative, especially on savers who are the core for efficiency in capital markets. William Larkin, Cabot Money Management: The Fed's unemployment target, as part of their dual mandate, may seem like their intended objective, but behind the scenes at the Fed I bet theyre truly trying to bring back the housing market. Guy LeBas, Janney Montgomery Scott: The Fed has managed to send an impressive number of mixed messages in the last several months, which undermines its desire for greater transparency. One example is the discussion of reevaluating QE in the January FOMC minutes that Bernanke essentially denied outright in his Congressional testimony. John Lonski, Moody's: The ECB might yet follow the path taken by the Fed and the Bank of Japan. The year-to-date's greater than 20% advance by the Nikkei stock price index warns that extraordinary monetary accommodation risks stoking potentially disruptive financial asset price inflation. Indeed, the risk of asset price inflation may be greater than the risk of consumer product price inflation. Drew Matus, UBS Investment Research: Now that the Fed has
Page 35 of 37
FED SURVEY
January 29, 2013 admitted that they cannot sell assets to tighten policy, UBS anticipates that it is only a matter of time before similar conclusions are reached with regard to using reverse repos and interest on reserves to tighten policy. Rob Morgan, Fulcrum Securities: In the last CNBC Fed Survey, I was one of only 3 participants who said the Fed would end the QE program this year. I also said there was an outside chance the Fed will raise rates this year. I stick with those thoughts in this survey. Chad Morganlander, Stifel Nicolaus (Washington Crossing Advisors): We are now at the show me stage of the market cycle. The baton has to be passed from a liquidity induced rally to more of an economic and earnings driven rally. Fundamentals are gradually improving but equity valuations seem fairly valued. Stanley Nabi, Silvercrest Asset Management: For nearly two decades, the U.S. economy experienced steady erosion in its relative strength. That recently appears to have been stemmed, giving credence to the assumption that a sustainable revival is at work. Joel Naroff, Naroff Economic Advisors: The only thing the economy has to fear is Washington itself. Lynn Reaser, Point Loma Nazarene University: While the Federal Reserve's easy monetary policy is achieving the desired effect of encouraging greater risk taking, it may be the wrong kind of risk. Rather than spurring a major revival in hiring and business expansion, the appetite for risk is feeding possible asset bubbles in junk bonds, farmland, and even corners of the housing market. John Roberts, Hilliard Lyons: We believe a recession/economic slowdown is a possibility in the latter half of 2014 or early in 2015. Some of the excesses that could cause a recession are beginning to build in the economy. Should the Fed begin to tighten right around
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FED SURVEY
January 29, 2013 that time and interest rates begin to move higher, debt refinancing fueled growth in earnings will reverse, causing a decline in corporate earnings growth. Combine that with any failures on the political front, and a slowing economy is a distinct possibility. Diane Swonk, Mesirow Financial: Firming housing prices are a game changer. There is something much more self-feeding about recovery this year. Could be a turning point. Mark Vitner, Wells Fargo: The Fed seems to be behind the curve and I wonder how far behind the curve they will allow themselves to get. Scott Wren, Wells Fargo Advisors: For the first time in this 4 year rally, some investors are beginning to chase the market higher, worried they are going to miss the upside. In addition "everybody" is looking for a pullback. When you combine those two items with an economy that is slowly improving and a Fed that is going to be extremely easy for a long period of time the path of least resistance is up.

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CNBC Fed Survey - March 19, 2013

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FED SURVEY

March 19, 2013