Roubini: We don't worry about inflation. We think
that accommodation is not going to be inflationary because there is
still a significant slack in goods and labor markets. Therefore, our
baseline this year is growth either at potential or below potential for
advanced economies, and that implies that inflation is going to remain
low—below the 2 percent of the formal or informal target of central
banks for all of the major advanced economies, from the U.S. to
eurozone, to Japan, even the U.K.
And that’s going to imply that
therefore the central banks of the G4 countries are not going to exit
the near-zero policy rates this year. The exit for near-zero policy
rates is going to be only next year. Yes, the Fed is going to taper.
Yes, the Bank of England is not going to do more quantitative easing.
But we see actually more unconventional monetary policy accommodation
done by the Bank of Japan and by the European Central Bank.
Therefore, the outlook of moderate growth, low inflation and
continuing monetary accommodation and a slow exit from conventional,
unconventional monetary easing implies that bond yields gradually are
going to go higher, but not much higher.
That means our forecast, say, for 10-year U.S. Treasurys is that by
the end of this year, yields will be around 3.4 percent. Now, that’s a
negative real return [including capital losses], but it’s not a disaster
or a rout for the bond market. In the mild environment of low
inflation, moderate growth and accommodation, we see the pickup in bond
yields in the U.S. being barely 60 basis points. Same thing for bunds;
same thing for gilts; and for Japan even less, maybe by year-end,
10-year JGBs [Japanese government bonds] will be at 1 percent as opposed
to 0.7 or 0.8 percent. - in IndexUniverse
Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
