The U.S. economy is likely to experience no inflation over the next 12 months, according to BNY Mellon's chief economist Richard Hoey. That's because the cyclical outlook for the next 12 months is likely to emerge as "a sustained expansion at a sub-par pace of growth," Hoey believes.

Speaking at Pershing's annual Insite meeting clearing and custodial clients, Hoey said that he believes "inflation is peaking all over the world." In particular, reversals from two shocks to the supply chain -- the halt in Libyan oil exports and the production slowdown cause by the Japanese earthquake and tsunami -- have already reached an inflection point.

By the second half of 2011, the impact of these two events should start to recede and more normal economic activity will ensue. Another reason for the current slowdown, Hoey believes, is that U.S. industrial production grew at a 9% rate in the fourth quarter of 2010.

That was simply not sustainable. "A moderate slowdown was inevitable," he said.

Hoey was not fearful about the winding down of QE2. "I don't think it [ever] did that much," he remarked.

The global economic expansion is sustainable, though Hoey outlined the two-speed global recovery from a different perspective from most economists, who have viewed emerging markets as recovering quickly and developed markets bouncing back at a snail's pace.

As he sees it, the nations recovering slowly are the ones still suffering hangovers from the debt bubble, including the U.S., the U.K., and the other countries on Europe's periphery that participated in the housing boom. Developed nations like Germany and Canada are enjoying strong recoveries.

That's because Canada's banks required something very strange from borrowers over the last decade. "It's called a down payment," Hoey said.

The housing recovery in the U.S. is unfolding at a glacial pace, but there are some encouraging signs. For decades, 64% of Americans owned their homes. But about a decade ago, Washington policymakers decided that was insufficient and took steps to increase it artificially. It rose to 70%. Today, thanks to foreclosures and lack or mortgage availability it is back to 66%, or close to the long-term historical average.

- Evan Simonoff