FED SURVEY

April 28, 2014

These survey results represent the opinions of 40 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 April 23-24, 2014. 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. Do you believe the Federal Reserve will, on net, increase the size of its balance sheet, reduce it, or keep it the same in 2014:
March 18 April 28

120%

100%

98%

95%

80%

60%

40%

20% 2% 0% Increase Reduce 3% 0% 3%

Keep same

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April 28, 2014 2-6. Do you believe the Federal Reserve will, on net, increase the size of its balance sheet, reduce it, or keep it the same in 2015:
March 18
70% 60% 50% 40% 30% 20% 10% 15% 39% 50% 59%

April 28

35%

2%
0% Increase Reduce Keep same

Average Expected Change in Balance Sheet Size:

March 18
$500 $408 $400 $300 Billions $200 $100

April 28

$416

$0 -$100
$(104) -$200 $(146)

2014

2015

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April 28, 2014 7. When do you believe the Fed will begin reducing the size of its balance sheet?
12%

Average:
10%

September 2015

8%

6%

4%

2%

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Nov Dec Jan '15 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan '16 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan '17 After Jan

0%

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April 28, 2014 8. Do you expect the Federal Reserve to taper its purchases of assets at its April meeting?
100%

95%

90%

80%

70%

60%

50%

40%

30%

20%

10%

5% 0%
Yes No Don't know/unsure

0%

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April 28, 2014 By how much do you expect the Federal Reserve to taper at its April meeting? (Only asked of those who said yes to Q8.)
120%

100%

Average:
80%

$11.1 billion

60%

40%

20%

0%
$5 $10 $15 $20 $25 $30 $35 $40 $45 $50 More than $50

Billions

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April 28, 2014 What mix of Treasuries vs. mortgage-backed securities do you expect in the Federal Reserve's taper? (Only asked of those who said
yes to Q 8.)
100%

90%

80%

MBS 46.62%

70%

60%

50%

40%

30%

Treasuries 53.4%

20%

10%

0%

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April 28, 2014 9. Do you expect the Federal Reserve to reduce its purchases at each of its post-January/March/April meetings this year?
January 28 March 18 April 28

90%

85% 81%

80%

72%
70%

60%

50%

40%

30%

28% 20% 15%

20%

10%

0% Yes No

0%

0%

0%

Don't know/unsure

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April 28, 2014 What is the average amount of tapering you expect at each meeting? (Only asked of those who said yes to Q 9.)
January 28 100% March 18 April 28

90%

80%

Averages: Jan 28: $10.65B Mar 18: $10.61B Apr 28: $11.62B

70%

60%

50%

40%

30%

20%

10%

0%
$5 $10 $15 $20 $25 $30 Billions $35 $40 $45 $50

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April 28, 2014 10. The Federal Reserve should:
January 28
70%

March 18

April 28

60%

59% 53%

50%

50%

40%

37%

30%

29% 27%

20%

19% 11% 10% 5% 2%

10%

0% Taper faster Taper slower

0%
Taper at the same Don't know/unsure pace

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April 28, 2014 11. Given the following 2015 year-end economic scenario, what do you estimate the fed funds rate would be?

Real GDP Unemployment Rate PCE Inflation Core PCE Inflation

3.10% 5.75% 1.75% 1.85%

Average Response

1.02%

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April 28, 2014 12. Overall, how do you rate the clarity and credibility of Fed communications?
Very clear and credible Somewhat not clear and credible
70%

Somewhat clear and credible Not very clear and credible

61% 60% 55% Somewhat clear and credible

56% 54%

54%

50%

40%

30%

Somewhat not clear and credible 24% 26%

Not very clear and credible 28%

21%
20% 18% 15% 10% 7% 7% 7% 8% 12% 15% 10% 17%

5% 0% Oct 29

Very clear and credible Dec 17 Jan 28 Mar 18 Apr 28

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April 28, 2014 13. The Fed's current monetary policy statement is:
Mar 18 survey
70%

Apr 28 survey

60%

60%

62%

50%

40%

36% 30%

30%

20%

10%

10% 3%

0% Clear Unclear Don't know/unsure

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April 28, 2014 14. Please tell us your early views on how Janet Yellen is doing as Fed chair compared to Ben Bernanke by rating their performances in the following areas on a scale of 1 to 5, with a higher number representing better performance. Bernanke Leadership Transparency Communication Economic Forecasting Overall Monetary Policy 3.95 3.65 3.38 2.95 3.47 Yellen 3.27 3.60 3.06 3.27 3.08

15. What grade would you give Janet Yellen as Fed chair so far?
Yellen
60% 51% 50% 40% 30% 27% 46%

Bernanke (Dec 17, 2013)

Averages: B- (2.71)
23% 22%

Yellen

Bernanke

20%
10% 10%

B (2.95)
3% 5% 3%
F

0% A B C D
Numerical average based on A=4, B=3, C=2, D=1, F=0

0%

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April 28, 2014 16. Which of these is the bigger risk to your forecasts for Fed policy in 2014 and 2015?
2014 60% 2015

51%
50%

49%

40%

39%

30%

28%

21%
20%

13%
10%

0% Fed will be more dovish than I expect Fed will be more hawkish than I expect

0%

0%

Risks are balanced Don't know/unsure

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April 28, 2014 17. Where do you expect the S&P 500 stock index will be on ?
June 30, 2014
2,050

December 31, 2014

June 30, 2015

2017

2,000

1,950

1913 1857

1924

1937

1,900

1,850

1844
1,800

1866

1883

1816 1814

1,750

1751
1,700

1752

1723

1709

1,650

1,600

1,550 Jun 18 '13 Jul 30 Sep 6 Sep 30 Oct 29 Dec 17 Jan 28 '14 Mar 18 Apr 28

Survey Dates

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April 28, 2014 18. What do you expect the yield on the 10-year Treasury note will be on ?
June 30, 2014
4.0%

December 31, 2014

June 30, 2015

3.54%
3.5%

3.44%

3.37%
3.33% 3.39%

3.32% 3.21%

3.18%
3.0%

3.10% 3.00% 2.80%

3.08% 2.95% 2.89%

2.5%

2.0% Jun 18 '13 Jul 30 Sep 6 Sep 30 Oct 29 Dec 17 Jan 28 '14 Mar 18 Apr 28

Survey Dates

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April 28, 2014 19. What is your forecast for the year-over-year percentage change in real U.S. GDP for ?
2014 2015

3.1%

3.0%

2.9%

2.8%

2.7%

2.6%

2.5%

2.4%

2.3%

2.2%

Jan 29, '13

Mar 19

Apr 30

Jun 18

Jul 30

Sep 17

Oct 29

Dec 17

Jan 28, '14

Mar 18

Apr 28

2014 +2.6% +2.6% +2.6% +2.6% +2.5% +2.6% +2.5% +2.6% +2.8% +2.8% +2.7% 2015

+2.9% +3.0% +3.0%

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April 28, 2014 20. When do you think the FOMC will first increase the fed funds rate?
25%

Average:
20%

July 2015

15%

10%

5%

0%

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April 28, 2014 24. Where do you expect the fed funds target rate will be on ?
1.2%

0.99%

1.0%

0.97% 0.92%

0.82%

0.83%

0.8%
0.70% 0.72%

0.6%

0.4%
0.28%

0.27% 0.21% 0.21%

0.20%

0.2%
0.20% 0.18% 0.16% 0.14%

0.19% 0.15% 0.16% 0.17% 0.13%

0.13%

0.14%

0.0% Jul 31 Jun 18 Jul 30 Sep 6 June 30, 2014

Sep 17

Oct 29

Dec 17

Jan 28 '14

Mar 18

Apr 28

0.20% 0.18% 0.16% 0.14% 0.13% 0.14% 0.16% 0.13% 0.17%

0.28% 0.97% 0.21% 0.21% 0.20% 0.19% 0.15% 0.27% 0.92% 0.82% 0.70% 0.72% 0.83% 0.99%

Dec 31, 2014

Dec 31, 2015

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April 28, 2014 25. Which of the following best describes your view on the effect of Chinas economic slowdown and the Russian conflict with Ukraine on U.S. growth?
China 80% Ukraine

70%

68% 64%

60%

50%

40%

33%
30%

30%

20%

10%

0%

0%

3%
It will have a modest impact It will have almost no impact

3%

0%

It will have a substantial effect

Don't know/unsure

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April 28, 2014 26. How much concern do you have that trouble in Chinas banking system could cause global systemic risk? between Russia and Ukraine could create wider global risks?
China 0% 1 0% 5% 10% Ukraine 15% 20% 25% 30%

3%

14%

21%

3 11%

21%

27%

14% 16%

3%
11% 11% 8% 8% 5%

Averages: China: 4.6 Ukraine: 4.8

19%

9 0% 0%

3%

8%

10

1= Not concerned at all 10= Highest level of concern

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April 28, 2014 27. 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%
34.0%

36.1%

30%
25.9% 25% 25.5%

28.5%

26.0%
20.6% 20.4% 19.1%

20%

20.3%

18.2%

18.4% 16.9% 16.2% 17.3% 16.9%

17.6%
15.2%

15%

15.3% 14.6%

10%

5%

0%

Survey Dates

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April 28, 2014 28. What is the single biggest threat facing the U.S. economic recovery?
Apr 30 Jun 18 Jul 30 Sep 17 Oct 29 Dec 17 Jan 28 '14 Mar 18 Apr 28

0%
European recession/financial crisis Tax/regulatory policies

5%

10%

15%

20%

25%

30%

35%

Slow job growth High gasoline prices

Overall inflation Deflation Debt ceiling Too little budget deficit reduction Too much budget deficit reduction

Rise in interest rates

Geopolitical risks Other Don't know/unsure
Don't know/un sure Apr 30 0% 0% 4% 2% Rise in Geopoliti interest cal risks rates Too Too little European High Tax/regul much Debt Overall Slow job budget recession budget Deflation gasoline atory deficit /financial ceiling inflation growth prices policies deficit reduction crisis reduction 9% 2% 2% 2% 0% 2% 20% 31% 20% 13% 10% 18% 4% 4% 2% 0% 2% 0% 2% 4% 3% 2% 0% 3% 0% 2% 2% 4% 7% 20% 22% 22% 28% 30% 27% 15% 8% 4%

Other

11% 13% 14% 7%

Jun 18
Jul 30 Sep 17 Oct 29 Dec 17 Jan 28 '14 Mar 18 Apr 28

0%
2% 0% 0% 0%

13%
2% 21% 18% 13% 18%

8%
15% 12% 5% 8%

5%
2% 2% 8% 3%

3%
2% 2% 0% 3%

3%
2% 0% 0% 0%

3%
0% 0% 5% 5%

3%
2% 2% 3% 3%

3%
5% 2% 3% 0%

24%
29% 30% 26% 21%

29%
32% 21% 23% 26%

8%
5% 7% 10% 3%

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April 28, 2014 29. What is your primary area of interest?

FED SURVEY
April 30,
Other 18%

Currencies 0%

Fixed Income 11%

Economics 50%

Equities 21%

Comments: Bob Baur, Principal Global Investors: We believe the U.S. economy is returning to normal, not a new normal, but the old normal. Pent-up demand is becoming evident as both businesses and households are finally shedding their fear of a double-dip or continuing financial crisis. Confidence is returning, C&I loans are surging, jobless claims are at seven-year lows and the Fed is eyeing its exit. Normalization is occurring. Robert Brusca, Fact and Opinion Economics: The Fed is obsessive about making its traditional mistake in recovery (letting inflation rise too much). But the world has changed. Clearly, slow growth and no inflation are the hallmarks of this age. With banks being crimped by more regulation and higher capital requirements the prospect for excessive lending to unleash the cobbled "money multiplier" to empower all that high-powered money to create
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April 28, 2014 inflation is remote. Also the Fed NEEDS to make its inflation target a real PROMISE. It must commit to it, not just refer to it. Cohabitation FED SURVEY is not marriage. Saying you like the 2% level of inflation for the April economy is not the 30, same as committing to make it happen over any horizon. The Fed needs to get serious about its inflation target. IF IF- it does that it will naturally see that the main enemy NOW is deflation. John Donaldson, Haverford Trust Co .: The improvement in the federal budget remains an underappreciated story. The reduced deficit makes the Fed's taper a lot easier. Mark Elenowitz, TriPoint Global Equities : There is an illusion by the public that since there is a bull stock market all is well, when in reality with over regulation of the banks, banks have not increased lending to small business and Main Street is still suffering. Until banks loosen lending, true recovery will be slow. Kevin Giddis, Raymond James/Morgan Keegan: Being that the "experts" have accurately predicted 6 of the last 2 rate increases, I believe that the Fed will not raise interest rates until late into the year 2015, mainly because economic growth, including jobs, will be too choppy in the months ahead to give the Fed the confidence to push rates higher before the 4th quarter of 2015. Stuart Hoffman, PNC Financial Services Group: It is "cut the rug time" for the U.S. economy to start quick stepping this spring after the winter waltz! I believe our economy has the talent and energy to step-up its pace the rest of this year. Hugh Johnson, Hugh Johnson Advisors: The more recent message (performance) of the financial markets has become mixed/ambiguous. Either the performance needs to improve (become unambiguously positive) or equity prices need to decline to levels that are "meaningfully" undervalued with widespread
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April 28, 2014 pessimism (unlikely right now). If neither happens, investors should maintain a modestly bullish portfolio structure and should not FED SURVEY increase it (i.e. raise equity allocation). Hold the line for the time April 30, market "tea leaves" and being and watch financial monetary/economic "tea leaves" carefully before changing from modestly positive strategy/allocation. Subodh Kumar, Subodh Kumar & Associates: Easy money driving momentum investing seems to be petering out but has built up systemic risks. Not a simple stretching for return is called for but instead we espouse a barbell of cash and diversified investments. Guy LeBas, Janney Montgomery Scott: Going forward the Fed needs to articulate a "what-if" strategy: what do we do if economic growth beats expectations? What do we do if it falls short? What's a neutral level of the Fed funds rate? Yellen answering those three questions would be far more valuable than her guessing about when the first rate hike might be. Drew Matus, UBS Investment Research : We believe zero interest rate policy is restraining economic activity. The closer we get to policy normalization, the closer we will get to normal levels of investment. Joel Naroff, Naroff Economic Advisors: The economy is shifting gears and while businesses may be thinking that wage pressures will not build, they are likely to do so by the fall. The biggest risk to businesses is they do nothing about worker retention before they start facing real retention issues. James Paulsen, Wells Capital Management: The impact of tapering has thus far been far less problematic for the pace of economic growth, bond yields and stock prices. I think this is because tapering has not hurt fundamental economic growth near as much as most anticipated while at the same time the show of
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April 28, 2014 confidence in the future of the economic recovery illustrated by the Fed by tapering has boosted private sector economic and financial FED SURVEY market confidence. That is, paradoxically monetary policy may be April more stimulative to 30, the economy and the financial markets since the Fed has finally begun tapering. Lynn Reaser, Point Loma Nazarene University: The challenges of returning to a more "normal" monetary policy may be even larger than those deployed during the financial crisis. The "exit" strategy could be more difficult than the "fix-it" strategy. John Roberts, Hilliard Lyons: We remain worried about a potential shortfall in earnings versus expectations later this year or early in 2015 as abnormally high profit margins revert to more normal levels. John Ryding, RDQ Economics: The Fed is unlikely to provide much additional clarity in the next FOMC statement (no new forecasts, no press conference). The Fed should be tapering more quickly and should begin raising rates in 2014 since most policy rules point to a liftoff in rates around the present time. The Fed has no credible story why the funds rate should be at only 2-1/4% when the economy is back to full employment and it thinks the long-run funds rate is around 4%. Diane Swonk, Mesirow Financial: Yellen represents continuity with Bernanke and, as a result, has given us little to judge by other than the tenor of her speeches which have shifted to be more accessible to the broader public than those who preceded her. That also represents a move that Bernanke advocated for. Scott Wren, Wells Fargo Advisors: The modest growth/modest inflation economy we have been living with for the last 3+ years is not going away any time soon. Stocks can do well in this kind of environment and this cyclical bull market probably has at least another 3 years to run. Returns will be more modest but total return
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April 28, 2014 compounded over the 2014 thru 2016 period will be attractive. If that is the case, retail investors need to be in this market and not FED SURVEY sitting with overweight positions in cash that yield virtually zero. April 30,

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