"Yellenomics" Very Supportive of Economic Expansion

NEW YORK and LONDON, November 13, 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 prior pace near 3% in both 2012 and 2013.

"We believe that the implication of 'Yellenomics' is that monetary policy will be very supportive of economic expansion for the next several years,"  Hoey says, referring to Chairman of the Federal Reserve nominee Janet Yellen, whom Hoey expects will be confirmed by the Senate.

Global growth acceleration should be led by the developed world, in continued recovery from past economic weakness, for these four reasons: (1) past and ongoing monetary ease, (2) reduced fiscal drag, (3) moderation in the post-crisis deleveraging of the private sector and (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."

Other Outlook 2014 findings include:

2013 TAPER TALK/2014 TAPERING – The actual taper of U.S. QE3 that Hoey expects to occur in 2014 may prove less disruptive than the mid-2013 sell-off on "taper talk" since the gap between current QE-suppressed Treasury yields and free-market levels has already been reduced, according to Hoey.

MUTED EUROPEAN EXPANSION – Stagnation in the U.K. has given way to a sustainable expansion and the outlook is favorable. In Europe, the euro should remain intact, the double-dip recession has ended and a sustained but muted expansion has begun, according to Hoey.   The pace of economic growth in Europe over the coming years is likely to be modest, however, given a combination of high debt burdens, challenging demographics, and only hesitant movement towards reducing north/south imbalances within the Eurozone.

ABENOMICS FAST TRACK – Following two decades of stagnation, Japan is experiencing a fast pace of growth in the early phases of Abenomics, the report states.  After a volatile pattern of pre-buying, then payback, due to the hike in the Value Added Tax scheduled for April 2014, moderate expansion should persist.

See http://www.bnymellon.com/foresight/markets-economy/outlook-2014-video-richard-hoey.html for Hoey's complete 2014 Outlook.

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