The Fed’s overstaying its welcome at terminal.

That’s the message from a growing number of business economists polled for the latest vintage of the NABE’s Economic Policy Survey, which tallied responses from 184 NABE members. This is a semi-annual poll and it was administered late last month.

Although inflation remains well above the Fed’s (arbitrary) definition of price stability, markets and macro watchers are increasingly keen to cite three-and six-month annualized figures in contending that victory is at hand, and that the Committee, by waiting around on the 12-month readings to cooperate, is once again demonstrating a perilous penchant for fighting the last war.

As the figure shows, 21% of NABE respondents in the new poll said policy is now “too restrictive,” up dramatically from 14% in the prior two surveys, and the fourth-largest share ever.

Note that the wording of the relevant question has evolved over the years. It now reads, “Do you consider CURRENT monetary policy to be…” Before February 2000, it said “Over the past six months, monetary policy was…”

Some (many) continue to scoff at the idea that policy’s too tight. After all, financial conditions are quite loose. As noted by one trader last week, the juxtaposition between the percentile ranking for the Fed funds rate going back to 1990 and the percentile ranking for various measures of financial conditions is rather stark.

Simply put: Policy rates are optically tight, but due to a variety of well-documented factors and phenomena, that’s not translating into more onerous financial conditions on some widely-cited measures.

The figure above shows the funds rate deflated by year-ahead University of Michigan inflation expectations, plotted with the HLW r-star estimate. There’s something absurd about relying on a policy rate, surveyed inflation expectations and an estimate of a wholly nebulous concept that can’t be observed or measured, to make determinations about policy when you could consult concrete metrics like variable-rate debt as a share of total household debt, the share of mortgages refinanced at record-low rates and corporate interest payments, but that’s economists for you.

I include the second chart because generally speaking, the Fed’s rationale for cutting rates this year revolves around the notion that as inflation recedes, a given nominal rate that’s held steady becomes mechanically more restrictive. At his press conference last month, though, Jerome Powell suggested the Fed won’t adhere slavishly to any such rules-based approach if it flies in the face of common sense. We’ll see.

Coming back to the NABE poll, just a quarter of respondents see a recession in 2024. Around half said the lags on which monetary policy impacts the economy are about the same as they always were. Just 16% said the lags are longer in modernity “due to the prevalence of fixed-rate financing, such as 30-year mortgages, that slow the impact of changes in rate policy.”

As with all such surveys, there’s no use trying to reconcile the responses. Suffice to say they (the responses) appear to reflect some cognitive dissonance among panelists, but the overarching takeaway is that more would-be “experts” believe the Fed should take “yes” for an answer. Implicit is the notion that the incoming data suggests the inflation battle’s won. I’m not sure that’s what the data shows, but then again, I’m not an economist. Although by virtue of my proximity to academia in another life, I may be guilty by association.