14th November 2013
An acceleration in global economic growth is expected in 2014, supported by aggressive easy monetary policies in most developed countries according to BNY Mellon Chief Economist Richard Hoey’s “Outlook 2014.” Global GDP growth should accelerate by one-half of one percent to three-quarters of one percent from the near 3% experienced in both 2012 and 2013.
Hoey believes that the nominee for the Federal Reserve Janet Yellen, when confirmed, will be very supportive of economic expansion for several years dubbing this expected approach ‘Yellenomics’.
Hoey says global growth acceleration should be led by the developed world in a continued recovery from past economic weakness, for four reasons –
1) past and ongoing monetary ease
2) reduced fiscal drag,
3) moderation in the post-crisis deleveraging of the private sector
4) moderate energy prices, given the expansion of new sources of energy supply, especially in the U.S.
Turning to the U.S. budget, Hoey thinks that future budget battles will end in a low level status quo stalemate rather than repeating the recent pattern of disruptive major clashes over budget policy.
“We believe that the U.S. budget battles have moved from a World War II phase of rapidly moving front lines to a World War I phase of static front lines and trench warfare,” Hoey says. “Rather than some ‘grand bargain,’ we expect minor budget compromises with little policy change and substantially less disruption than in the last several years.”
He adds that the Fed will move slowly.
“There will be discussion about whether the Fed will taper back its quantitative easing program. We expect that to take place but we also expect the federal funds rate to stay right down at the zero-bound throughout 2014 in the United States. There are five stages of monetary policy; aggressively stimulative, stimulative, neutral, restrictive and aggressively restrictive. We’re now at aggressively stimulative, and the Fed is thinking about “could they just move it maybe closer to stimulative?” That’s unlikely to disrupt the functioning of the economy, or for that matter, the markets.”