"Subcycle inflation peak" expected in many countries.
"Our most likely case is that in order to resolve the debt ceiling struggle, there will be a mini-deal this year targeting future deficit actions," says BNY Mellon Chief Economist Richard B. Hoey in his June 2011 Economic Update. "We continue to believe that the budget deficit will be easy to finance in the near term, because monetary policy is easy and private sector credit demand is weak. While we doubt that any deal agreed to this year would fundamentally fix the structural deficit problem, the issue has risen higher on the public agenda."
"The U.S. budget deficit is a problem for today from a political perspective," Hoey continued. "From a financial perspective, however, we believe that it is a problem, not for today, but for some future year."
Hoey continues to expect a sustained global economic expansion along with two subcycle patterns: a subcycle slowdown in economic activity and a subcycle peak in reported inflation (including food and energy.) Hoey believes global growth should be sustained due to:
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The lagged impact of two years of stimulative macroeconomic policy;
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Balance sheets have strengthened as profits have rebounded strongly;
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Food and energy prices are already elevated and we now expect a subcycle peak in most countries in the reported rate of inflation as the pace of food and energy inflation slows.
"Overall, we believe that, in the current midcycle context, the global expansion is likely to prove sustainable," Hoey concluded.
See www.bnymellon.com/foresight/pdf/update.pdf for Hoey's complete June 2011 Economic Update.
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