Luca Paolini at Pictet AM optimistic on US under Janet Yellen

The appointment of Janet Yellen as chair of the US Federal Reserve has drawn favourable comment from Luca Paolini, chief strategist at Pictet Asset Management.

Following Janet Yellen’s recent appointment, we believe the Fed could provide good support for riskier asset classes in 2014. Although we expect the US central bank to reduce its monthly bond purchases by $10bn at each of its scheduled rate-setting meetings this year, the risks are skewed towards a less hawkish scenario.

Our view is that, under the new leadership, the Fed will be pragmatic in its approach, ready to slow the pace of tapering or adjusting its rate guidance should economic conditions deteriorate. Our favoured currency also remains the USD. Strong US economic growth and the steady withdrawal of US monetary stimulus, which gives the currency yield support, are pre-conditions for a long term trend of appreciation for the world’s reserve currency.

Our business cycle indicators continue to point to a solid economic recovery – suggesting growth rates in developed markets could rise above the long-run potential. The fourth quarter earnings season has also offered positive signals: for one, we remain encouraged by corporate America’s ability to maintain a high level of profitability.

While recent US economic data has been mixed – employment and capital spending figures were weak in January – business confidence remains solid and consumer spending is strong thanks to rising confidence and low inflation. Our US growth forecast of about 3 per cent for 2014 is becoming the consensus view.

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