Just as the leading figures of global central banks are gathering in Jackson Hole for the annual “Economic Symposium”, global brokerage and trading related services provider, ConvergEx, has released a survey aiming to decipher the investment community’s sentiment towards the Federal Reserve and current chair Janet Yellen.
The survey dubbed “U.S. Monetary Policy Survey” was performed by ConvergEx through an online quizzing of 219 financial industry participants between August 12th and August 14, 2014. Respondents included buy-side firms among which asset managers and hedge funds and sell-side firms like banks and broker-dealers, were complemented by answers from trading venues, service providers and other financial industry participants.
According to the findings, there is hardly any evidence that the financial industry thinks highly of the current monetary policy stance of the US Federal Reserve. Just a touch below 60% think that the Federal Reserve is behind the curve with its ultra easy monetary policy.
On the other side of the isle, 9% are of the opinion that policy measures should be even more stimulative than current levels, effectively dissenting from the ongoing tapering effort as rates remain at historical lows near zero, while just below 20% think that the monetary policy of the Fed is just in line with what needs to be done. At the same time, only 49% openly approve of the job the FED is doing, while 32% disapprove.
This is the first divergence revealed by the answers of the financial community participating in the survey. If 59% think that the FED is behind the curve, why do only 49% of the respondents believe that the monetary policy committee is doing a good job?
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It gets even more interesting when we see the answers to the next question in the survey about the influence of the FED on capital markets. Respondents have been quite categorical in their answer that the FED has too much influence on capital markets, with 68% stating it, while 32% have replied that the central bank’s influence is just about right. Financial markets professionals seem to be getting increasingly worried about the extent in which current monetary policy has been affecting the valuations on both the stock and bond markets.
The second divergence observed is that despite alleged not so “correct” FED policy, the Federal Reserve’s Chair, Janet Yellen, is getting a B for her handling of monetary policy so far. 23% of the surveyed believe that she already deserves an A, while a total of 18 percent would give her a C or D. In 6 full months as Federal Reserve Chair, Janet Yellen has earned 6% of the votes among the respondents already classifying her tenure as a failure.
Wrapping up the survey is probably the most interesting question revealing what worries the respondents most. When asked who they think the Best Federal Reserve Chair of all time is, almost half of the respondents pointed out Paul Volcker, who defeated the “great inflation” in the 80’s, as the number one man for the job.
He is followed by Ben Bernanke, who gets the approval of 31% of respondents for handling the “financial crisis”, while Alan Greenspan has lost his credibility after his long tenure at the Federal Reserve, ending with the Federal Reserve’s Market Open Committee chaired by him, inflating the biggest housing bubble ever, after keeping policy rates too low for a protracted period of time.
Only time will tell whether Janet Yellen will follow in the footsteps of Alan Greenspan and make the same mistake. However, as the 15th Chair of Federal Reserve, she has one of the toughest jobs in the history of monetary policy – removing a 5-year long stimulus which has been distorting capital markets prices all over the globe.
ConvergEx Group’s Chief Market Strategist, Nicholas Colas, stated in the announcement accompanying the survey, “There’s tangible fear among investment professionals about the unwinding of Quantitative Easing and the painful increases in rates that will follow. Our survey shows that Ms. Yellen is seen as a strong leader, and investors don’t want to scrap the structure of the Fed, but there is real concern about what happens next.”