As any hamster knows, running in place takes a lot of effort. Despite prodding and poking our priors, our global economic outlook remains essentially unchanged from last month. Incoming data have modestly outpaced expectations across major advanced economies, consistent with an upturn in global activity that supports commodity prices that was already in the outlook. Anchored by stronger global demand and more favorable prices of important exports, growth in emerging market economies seems well maintained.
In the US, the advance of activity is supported by accommodative financial conditions made possible by the Federal Reserve’s slow journey to policy normalcy and the expectation that the new administration will deliver at least a fillip to spending, both through regulatory relief and fiscal stimulus. The US shares some of this demand momentum with its trading partners via dollar appreciation—although mostly in the past tense because we think the bulk of the gain in terms of foreign currencies will be seen in the rearview mirror. The net depreciation of the euro and the yen implies that Janet Yellen succeeded where her colleagues Mario Draghi and Haruhiko Kuroda failed—she eased financial conditions in those two economies stuck with negative policy interest rates.