How does recovery change the outlook for investment in 2014?by Nick Carn / February 20, 2014 / Leave a comment
Published in February 2014 issue of Prospect Magazine
Janet Yellen is sworn in as Chairman of the Federal Reserve: “It now owns an extraordinary 30 per cent of all outstanding Treasury bonds ” © Bloomberg via Getty Images
The prospects for global economic growth are looking better this year as economic recovery in the developed world trumps a slowdown in emerging markets. Dominating the investment agenda are US “tapering” of quantitative easing and China’s planned economic transition.
The Federal Reserve is beginning the process of undoing its bold monetary policy experiment. This has involved not only a long period of near zero interest rates but also an expansion of the central bank’s balance sheet to about four times its usual size. It now owns an extraordinary 30 per cent of all the Treasury bonds outstanding. Contrary to some expectations, inflation has not resulted—indeed by some measures it has fallen to multi-decade lows—and it will be with considerable relief that the central bank takes the first steps towards normalisation before any unpleasant side effects have manifested themselves.