WASHINGTON - The majority of its member U.S. economists believe the Federal Reserve's current monetary policy is "about right," and expect short-term interest rates over the next 12 months would remain about where they are currently, the National Association for Business Economics said Monday.

Its National Economic Policy Survey, which polled 259 members for their views on a number of policy issues, also found that a large percentage see fiscal policy becoming "more restrictive" over the next two years.

The NABE said 58% of respondents indicated that current monetary policy is "about right". On the other hand, roughly 35% said monetary policy is "too stimulative," while just 7% view current policy as "too restrictive."

"A sizeable majority -- 71% -- predict that short-term interest rates will remain at about their current level for the next 12 months," the NABE said, while of the remaining 29% who think that short-term rates will increase over the next 12 months, "more than half (55%) indicated that interest rates will rise by 25 bps or less and about 23% look for short-term rates to rise between 26 bps and 50 bps." 

Only 10% -- about 3% of all survey respondents -- expect short-term interest rates to increase by more than 50 bps over the next 12 months.

The NABE survey said only 27% of the panelists view higher inflation as a bigger risk over the next three years than deflation, while 44% believes that neither inflation nor deflation is a risk for the next three years.

Over 20% indicated deflation is a risk in the short term but that inflation would emerge as a larger risk toward the latter part of the 3-year period. Only 7% view deflation is the primary risk.

As to what actions the Fed should take going forward, "about one half of the survey respondents said that they prefer that monetary policy remain 'unchanged' over the next 12 months," the NABE said, with only 9% of respondents indicating a preference for more stimulative monetary policy over the year, while 41% want more restrictive policy.

Regarding the Fed's drive to expand its communication and improve the transparency around its policymaking, the NABE said a majority of those surveyed believe the Federal Open Market Committee's 2% long-run inflation target "has increased the effectiveness of monetary policy."

In addition, 59% said the FOMC's new policy of releasing projections of the federal funds rate in its quarterly Summary of Economic Projections has also increased the effectiveness of monetary policy.

While divided on the proper path for monetary policy, the NABE said there was more agreement about future U.S. fiscal policy.

"A slight majority (53%) of respondents indicated they would prefer fiscal policy to be more restrictive over the next two years, and an even larger percentage (58%) expects it to be more restrictive," it said.

The numbers of respondents that prefer a more restrictive fiscal policy is up compared to the previous survey conducted in August, and the number of those that expect it has declined. In the August survey, 49% of survey participants said they preferred a more restrictive policy while over 70% said they expected it.

On the other side, "a sizeable" 31% of respondents in the current survey would prefer fiscal policy to be more stimulative over the next two years, the NABE said, but only 14% actually expect fiscal policy to be more stimulative over the next two years.

With regard to the best strategy to tackle the massive government deficits, "the vast majority of survey respondents favor some combination of higher taxes and reduced spending in order to reduce the federal budget deficit, with the general view tilting more in the direction of spending reduction," the NABE said.

The survey also included a question about the euro area debt crisis, and found that nearly six out of 10 respondents believe Greece should leave the Eurozone and revert back to its own currency, while 42% thinks Greece should remain in the monetary union.

Meanwhile, "Opinion was almost evenly split as to whether the short-term costs of fiscal austerity and its risks to growth outweigh the benefit of securing the buy-in of Northern Eurozone nations and creditors," the NABE said. While 51% of respondents think the short-term costs do not justify the benefits, the other 49% believe the opposite.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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