Fed Easing Seen Ineffective by 75% in Global Poll Favoring ECB
Global investors doubt the Federal Reserve’s plan to buy more Treasury securities will boost the U.S. economy or bring down unemployment and say they believe the government is pursuing a weak-dollar policy, a poll shows.
Three-quarters of those surveyed say the central bank’s securities purchases -- or quantitative easing -- will have little or no effect on joblessness, according to the latest quarterly Bloomberg Global Poll of 1,030 investors, analysts and traders who are Bloomberg subscribers. More than half say the Fed’s action won’t increase U.S. growth over the next year.
Lower unemployment “is a long way off,” Jonathan Mackay, a poll participant and senior fixed-income strategist for Morgan Stanley Smith Barney LLC in New York, said in an e-mail.
Global investors do think the Fed will have some success in lifting inflation, another goal. Half expect inflation to rise modestly as a result of the central bank’s actions. One in five say the Fed will get more than it’s hoping for and that inflation will increase to dangerous levels.
The difference between yields on 10-year Treasury notes and the equivalent Treasury Inflation Protected Securities, a gauge of inflation expectations, rose to 2.11 percentage points yesterday from 1.63 points on Aug. 27, when Fed Chairman Ben S. Bernanke said the central bank might take further steps to boost the economy.
Keeping Dollar Down
Seven of 10 respondents say the U.S. is deliberately keeping the dollar low against other currencies, while only one in four think it’s letting the market decide the value of the greenback, according to the survey conducted Nov. 8 by Selzer & Co., a Des Moines, Iowa-based firm.
Investors are more favorably disposed to the policies adopted by the European Central Bank than they are to the Fed’s. Two-thirds say the ECB acted wisely in deciding last week against taking additional action to stimulate the region’s economy. Fewer than half think the same of the Fed’s decision to buy more bonds.
“The ECB looks like the most responsible central bank as QE becomes inefficient if everyone does it,” Joel Kahil, an investment analyst in London for insurance company Amlin Plc, said in an e-mail. “And the same applies if everyone does competitive devaluation that would lead to protectionism.”
Still, more than two-thirds of investors describe the U.S. economy as stable or improving. That echoes a separate survey by Bloomberg, in which economists said growth will strengthen through 2011. After expanding at a 2.2 percent annual rate this quarter and next, the economy will accelerate to a 3.2 percent pace by the last three months of 2011, according to the median forecast of economists polled from Nov. 3 to Nov. 9.
The results of the poll underscore complaints by officials from China, Germany and Brazil, who say the Fed’s Treasury- purchase plan may jar other economies while failing to fuel U.S. growth. German Finance Minister Wolfgang Schaeuble called the move “clueless” and suggested it was aimed at driving down the dollar.
The Fed said Nov. 3 it intends to buy an additional $600 billion of longer-term Treasury securities over the next eight months. It said progress in reducing joblessness, which stood at 9.6 percent in October, has been “disappointingly slow” and called underlying inflation “somewhat low.” Excluding food and fuel costs, consumer prices rose 0.8 percent in the 12 months ended September, the smallest year-on-year gain since 1961.
Bernanke Standing Falls
Such an approach is called quantitative easing because it seeks to loosen monetary policy by purchasing quantities of bonds rather than lowering short-term interest rates, which are already near zero percent.
Bernanke, whose standing with investors has slipped, according to the poll, defended the action, telling students in Jacksonville, Florida, on Nov. 5 that he and his fellow policy makers must focus on the U.S. rather than overseas economies in settling on their strategy.
The euro has risen 8 percent against the dollar since Bernanke’s Jackson Hole, Wyoming, speech Aug. 27. A plurality of poll respondents -- 44 percent -- expects the dollar to fall further over the next three months versus the euro.
“By engaging in QE, the U.S. is hoping to cheapen the dollar, improve its trade competitiveness and grow its export share,” said poll respondent Filip Ruszkowski, managing director of Macro Advisors Pte. Ltd. in Singapore.
More than half of investors describe the Fed’s policy as too aggressive, compared with 36 percent who say it’s about right. Only 10 percent believe the central bank is being too timid.
Poll respondents are also worried about U.S. fiscal policy. More than three in five say there’s a moderate or big risk that the budget deficit will provoke a crisis of confidence and a dramatic rise in long-term interest rates in the next two years.
Bernanke’s standing among investors has fallen. Just over 60 percent view the chairman favorably in the latest poll, compared with 71 percent who felt that way in September.
U.S. Treasury Secretary Timothy Geithner is seen favorably by 44 percent of respondents against 47 percent who rate him unfavorably.
ECB President Jean-Claude Trichet gets favorable marks from 55 percent of those surveyed, little changed from September. Bundesbank President Axel Weber, considered by economists to be a leading candidate to replace Trichet as ECB president when he steps down in a year, is rated favorably by 46 percent of investors, according to the poll. Twenty percent view him unfavorably, while the rest have no idea.
Among European investors, Weber receives a positive rating of 51 percent, compared with 66 percent for Trichet.
Bank of Italy Governor Mario Draghi, who is also considered a candidate to succeed Trichet, is more of a blank slate for global investors. More than half say they have no idea how to rate him, with the balance about evenly split between those according him favorable and unfavorable marks.
Draghi is better-known to European investors. Three in 10 gave him a positive rating, while one in four rated him negatively. The balance had no opinion.
The survey has a margin of error of plus or minus 3.1 percentage points.
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