Economists: Inflation threat growing

Survey of top economists finds inflation concerns closing fast on credit market woes as top threat to economy.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Chris Isidore, senior writer

Are you better off than you were seven years ago during the last economic downturn?
  • Yes
  • No
  • About the same

NEW YORK ( -- A survey of top economists shows that many are growing more concerned about inflation and slightly less worried about mortgage and credit market problems.

According to the National Association of Business Economists, 16% of the 278 members responding believe energy prices are the most serious short-term risk to the economy, up from only 5% who picked that in the March survey.

In addition, another 15% cited overall inflation as the greatest threat, up from 10% in March.

Nonetheless, the financial crisis remains the biggest worry -- 46% of the economists surveyed cited subprime loan defaults, excessive household and corporate debt or the credit crunch as the biggest problem. That's down from the 52% who cited defaults and debt as the most serious threat in the March survey.

Although oil prices have retreated since the July 25 to Aug. 11 survey period, one economist said she doubts that concerns about energy and inflation has abated much since then.

"My guess is it may even be higher," said Brandeis University Business School professor Catherine Mann, a member of the NABE committee that conducted the survey.

Questions about housing bill

Economists also were fairly critical of the recently passed housing bill, signed by President Bush on July 30. Of those surveyed, only about a third said it would stabilize home prices or hasten a housing recovery, even though 59% thought it would reduce mortgage foreclosures.

Nearly eight in 10 of the economists surveyed said the bill constituted a bailout of home borrowers, while 65% said it represented a bailout of lenders. In addition, 71% said it was unfair to those who were not mortgage borrowers.

The bill also allowed troubled mortgage lenders Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) to borrow unlimited amounts of money from the Treasury Department and opened the door for Treasury buying equity in the firms if they needed such assistance.

Three-quarters of the economists agreed that the two firms, the primary source of funding for banks and other home lenders making mortgages, were "too important to fail." Only 20% said the assistance authorized in the bill would amount to nationalization.

The economists also were mostly supportive of the Federal Reserve's response to the crisis in the financial markets: 83% thought the Fed's program to make more money available to banks and Wall Street firms if necessary had been either moderately or highly effective.

However, 88% of the economists said they were at least somewhat concerned this would encourage future risk taking by financial firms. In addition, 55% said the Fed's monetary policy was "about right," up from only 48% who believed that in March. The Fed's key interest rate now stands at 2%

The Fed cut this rate seven times between last September and April, and left rates unchanged in June and August. Most investors and economists expect the Fed to keep rates at 2% following its September and October meetings. To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.