Federal Reserve Jerome Powell testifies during a hearing of the Senate Banking Committee on the Quarterly CARES Act Report to Congress on Capitol Hill in Washington, USA, December 1, 2020.

Susan Walsh | Reuters

The Federal Reserve will remain on hold for the remainder of this year, although Wall Street increasingly believes policymakers should curb the stimulus they give to the US economy, according to the latest CNBC Fed poll.

Survey respondents forecast the Fed won’t cut its $ 120 billion asset purchases until January, three months later than CNBC’s March poll forecast. And the first rate hike won’t come until December 2022, survey participants said.

Still, 68% of the 34 respondents say the Fed doesn’t have to make these asset purchases to support the market function and 65% say the Fed doesn’t have to do them to help the economy. More than half – 56% – think the Fed should respond to the Biden government’s massive fiscal stimulus by cutting asset purchases and raising interest rates sooner.

“While it is fair that the Fed should not comment on fiscal policy, it is perfectly appropriate that monetary policy take into account major fiscal changes in calibrating monetary policy stance, but the Fed does not,” wrote John Ryding, chief economic advisor at Brean Capital. “Monetary policy is likely to be too simple for too long.”

“The pressure on the Fed to reduce QE, which initially means nothing to economic growth, will only increase in the coming months,” said Peter Boockvar, chief investment officer at the Bleakley Advisory Group.

Fed talk worked

The poll underscores the extent to which Fed Chairman Jerome Powell and the Fed have convinced markets that despite growing economic optimism and fears of inflation, they will remain on hold.

Survey participants expect the economy to grow by more than 6.5% this year, the unemployment rate to fall to 4.9% and inflation to rise to 2.5%. Under the previous model, with which the Fed set monetary policy, such an inflation forecast would probably have been enough to put the Fed on a tighter course.

“The Fed’s new policy framework dictates a willingness to boil the economy to achieve broad, inclusive, full employment, and policymakers do not believe the rise in inflation will be” big or sustained, “wrote Kathy Bostjancic, United States Chief Financial Officer, Oxford Economics.

The outcome of the new framework is expected to be positive for stocks but not for bonds. Respondents see that the S&P 500 is close to 4,250 by the end of the year and above 4,500 by the end of 2022. However, the 10-year return is expected to hit 2% this year and rise above 2.4% next year.

70 percent of respondents view stocks as overvalued relative to their fundamental prospects for economic and earnings growth.

As the prospects for economic growth and recovery continue to improve, new risks to the economy have emerged. Inflation is now seen as the second largest growth risk after the pandemic, after the third in the previous survey. Americans’ failure to take the Covid vaccine is now seen as the third largest risk, and respondents are increasingly concerned about Biden’s plans to levy taxes on businesses and the rich.