WASHINGTON - A majority of respondents to a prominent survey of U.S. economists believe mortgage rates will rise once the Federal Reserve completes its planned purchases of mortgage-backed securities, but most are not in favor of "explicit subsidization" of Fannie Mae and Freddie Mac, as it would not promote the long-term health of the mortgage market.
Two-thirds of those polled by the National Association for Business Economics for its Economic Policy survey also believe that Federal Reserve monetary policy is appropriate at the moment. However, a majority believes that a rise in interest rates is both likely and appropriate in the next several months.
The survey results, published early Monday, showed that survey participants were also asked what impact they expect the end of the Fed's MBS purchase program to have. The nearly unanimous view is that mortgage rates will rise.
"Twenty-eight percent think that rates will rise up to 25 basis points, while another 42 percent think rates will rise up to 50 basis points," the NABE said.
The withdrawal of the Fed's special support for the housing market has raised even more questions regarding both Fannie Mae and Freddie Mac, and how much subsidization should be required of both agencies to support the U.S. mortgage market.
The NABE posed this question to participants in its survey, and 63% of respondents believe that greater explicit subsidization of the agencies "would not be beneficial in promoting the long-term health of the mortgage market."
The group also said its membership generally thinks that monetary policy is appropriate at the current time. But when asked what posture they would prefer in the next six months, 54% want a more restrictive policy vs. 41% who favor no change.
However, "63% of respondents expect that the Federal Funds target will be increased, with most expecting a 25- or 50-basis-point rise," the NABE said.
The majority of respondents also warn that removal or reduction of the Fed's regulatory power would make its conduct of monetary policy less effective, with almost 90% believing that the independence of the central bank is very important.
As for U.S. fiscal policy, although 44% of survey participants described the stance current fiscal policy as "about right," 48% of respondents indicate that fiscal policy should be more restrictive over the next six months, while 68% expect that fiscal policy will be more restrictive two years from now.
"Eight out of 10 respondents do not believe another stimulus package is warranted at this time," the NABE said, "In the event that a jobs initiative were to be adopted, the top policy choice for effective job creation would be the elimination of capital gains taxes on small business."
The widely expressed concerns about the state of the U.S. deficit are also present in the survey, with 80% of participants suggesting that the long-term imbalance of the federal budget might impact the country's ability to borrow.
The NABE noted that the top choice among respondents on the tax side to help improve the fiscal situation is tax simplification and loophole reduction. On the spending side, the leading recommendation is Social Security reform through a further increase in the eligibility age for benefits.
Economists in the survey also faced questions regarding the various financial reform proposals and the kind of impact they will have. Two-thirds of survey respondents (66%) do not believe that Financial Crisis Responsibility fee will be positive for bank customers.
As for the controversial Consumer Finance Protection Agency, 54% feel that creating such an agency would not impair safety and soundness regulation.
The Obama administration in the last month introduced a proposal to further restrict activities of large depository institutions that would limit the size of these companies and prohibit certain proprietary trading activities in an effort to limit risky activities requiring bailouts funded by taxpayers.
Giving their thoughts on the proposal, the NABE said 59% of survey respondents believe that imposing size restrictions on these companies would not be an effective means of addressing the Too-Big-To-Fail issue.
"Further, almost 57% of those surveyed believe that a ban on proprietary trading on large depositories would mitigate potential systemic risk in the financial services industry," the NABE said.
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