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SOURCE BNY Mellon
To Taper or Not to Taper? That is the Question, Hoey Says
NEW YORK and LONDON, Sept. 24, 2013 /PRNewswire/ -- While the first Fed taper has been postponed, the first taper should occur within the next two to six months according to BNY Mellon Chief Economist Richard Hoey in his most recent Economic Update entitled, "Seven Year Expansion."
"We regard the Fed's failure to start the taper as a leading indicator of a central bank which will eventually end up 'behind the curve' in its monetary policy, slowly building up the pressure for a major upward spike in interest rates in 2017 or 2018, following the Presidential election of 2016," said Hoey. "While the first Fed taper has been postponed, we expect the first taper to occur within the next two to six months."
Hoey expects an acceleration in global economic growth in 2014, above the pace of 2012 and 2013. This should be largely attributable to stronger growth in many developed countries in response to past monetary ease and continuing monetary ease, he says. While there should be a mixed pattern among emerging countries, Hoey states that fears of a developing market crisis appear overdone and continued expansion at a moderate rate can be anticipated in most of them.
"We believe the U.S. economy has moved into the second half of what we expect will be seven consecutive years of economic expansion," Hoey says. "U.S. real GDP has grown at about 2% over the past four years, but we expect an acceleration to three years of 3% real economic growth in 2014, 2015 and 2016. This should be due largely to the fading of several drags, such as the federal fiscal drag and the state and local downsizing drag. The U.S. is not very inflation-prone, so monetary policy can remain stimulative. The dovish stance of monetary policy was reinforced by the Fed's recent decision to postpone the first taper of QE3."
Hoey also continues to expect a three-phase upward adjustment of bond yields over a half-decade period, as outlined in the report entitled "Interest Rate Normalization" dated September 12, 2013. The first phase is an adjustment to free-market levels from artificially low bond yields, which reflect an artificial scarcity of bonds due to large scale bond purchases under QE3.
"This adjustment is underway, but in a choppy pattern, due to the Fed's 'Hamlet syndrome' about beginning the tapering down of QE3. To taper or not to taper? That is the question," Hoey concludes.
See http://www.bnymellon.com/foresight/markets-economy/economic-update-video-richard-hoey.html for Hoey's complete "Seven Year Expansion" Economic Update.
Notes to Editors:
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.4 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2013, BNY Mellon had $26.2 trillion in assets under custody and/or administration, and $1.4 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.
All information source BNY Mellon as of June 30, 2013. This press release is qualified for issuance in the UK and US and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Investment Management (US) and BNY Mellon Asset Management International Limited (ex-US) to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. Registered office of BNY Mellon Asset Management International Limited: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorized and regulated by the Financial Conduct Authority. A BNY Mellon Company.
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