Industry Has Mixed Feelings on Federal Reserve Policy, Finds ConvergEx

In a survey on U.S. monetary policy conducted by brokerage firm ConvergEx Group, 49% of respondents said they approve of the job the Federal Reserve is doing right now, but the majority think the Fed has too much influence on capital markets and is “behind the curve” for interest rates.

The survey was conducted online between August 12-14 and has a margin of error of ± 10%. Nearly half the respondents are buy-side firms, 29% sell-side firms, 12% service providers and the rest are other financial industry participants.

While nearly half approve of how the Fed is doing, 32% said they disapprove, and the remaining 19% are unsure.

In response to whether the Fed is ahead or behind the interest rate curve given the Fed’s dual mandate of maximizing employment and controlling inflation, 59% said that interest rates should be higher, 32% said rates are good where they are, and 9% think they should be even lower.

As for the Fed’s influence on capital markets, 66% think it has too much, while 31% think the central bank’s influence is just right, and 3% think it has too little influence. Yet 47% think the Fed should have the same amount of autonomy, and another 30% think it should have even more autonomy.

Furthermore, the most common answer regarding if Fed will make the right policy decisions is that 33% are confident, though the results are closely distributed, with 28% neutral, 27% not confident, 7% not at all confident and 5% very confident.

These responses may seem somewhat contradictory in that many are satisfied with the Fed’s work while also thinking rates should be higher, but this can be explained by respondents “thinking of what the Fed has done in the near past versus where it will go in the future,” says Nicholas Colas, chief market strategist, ConvergEx Group.

Following the financial crisis, most were satisfied with the Fed’s actions, “broadly speaking, in terms of stabilizing the financial system and getting the economy pointed in the right direction,” says Colas.

Yet now, he says, “the Fed is still so much the topic of conversation,” and many would like to see a return to talking about the market environment rather than what Fed policy will be.

As for the approval of Federal Reserve Chairwoman Janet Yellen, the most common grade from respondents was a “B,” with 53% providing either a B+, B, or B-. Additionally, 23% provided a grade within the “A” range.

“The financial industry likes Janet Yellen but believes she leads a central bank that is overexposed and behind the curve,” says Colas. “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.”