Global economic conditions have remained favorable, even if they deteriorated slightly in April — as our Global GDP Nowcast shows. Meanwhile, geopolitical tensions appear to have grown, particularly on the Korean peninsula, offering an early and fraught test to the young and embattled White House administration. In terms of monetary policy, we suspect the Fed is closer than we thought just a few weeks ago to agreeing on important balance sheet changes that could begin as early as this year.
In this context, Europe has been a standout — both for its positive economic surprises and the resilience of its political institutions. In addition, China’s interests in North Korea have gained a more public articulation thanks to President Trump’s unpredictability. And as the Fed contemplates different forms of tightening, we continue to expect some White House-led stimulus will eventually emerge, all of which should set up some interesting dynamics for policy and global risks in 2018.