Federal Reserve & Interest Rates

The members of the National Association for Business Economics (NABE) released survey data today expressing a grave concern for consumer debts, including mortgage troubles. The 259 members voted, and the results showed that 52% of the members voting on the survey were primarily concerned with the short-term risks of delinquent sub-prime mortgages and other consumer debts.

The survey was taken in the first half of February. The survey included both short-term and long-term risks and challenges to the United States Economy. Short-term risks included inflation, terrorism, employment, government spending, energy prices and account deficit. Those concerns did not rank nearly as high as the effects of sub-prime loan defaults (which 34% of members ranked as the chief concern) and excessive household and corporate debt (which 18% of members ranked as the chief concern). Only 10% of participants considered inflation to be the chief risk.

The top ranking long-term challenges in the view of the NABE were healthcare (22% noted this as the primary concern) and the growth of the elderly population (20% noted this as the primary concern). Third on this list was the education system, which earned 19% of the long-term challenge votes.

In the opinion of 34% of the NABE, monetary policy is “too stimulative.” In other words, the sharp interest rate cuts have perhaps been a little too sharp. Members expressed concerns about inflation and spoiling foolish investors with further rate cuts. A majority of voters expect to see further rate cuts, despite these concerns.

An overwhelming majority of participants, some 91% of them, noted that the three major entitlement programs need reform. These include Social Security, Medicare, and Medicaid.

On the positive side, participants consider flexible labor markets and technology to be two strengths of the United States. Members also view globalized trade and capital flow as having a positive impact on the U.S. economy.

Last year at this time, the mortgage crisis was nowhere near the chief economic concern. The past several months have obviously highlighted the concern. Continued rate cuts are expected, regardless of these issues of debt, inflation, and the weakening of the dollar.