U.S. economy is not at risk of deflation, BBVA Compass economists say

- Researchers say the Federal Reserve shouldn't divert from its tapering timeline

- Bank's economists to host conference call Tuesday to discuss inflation

Mar 28, 2014, 09:12 ET from BBVA Compass

HOUSTON, March 28, 2014 /PRNewswire/ -- As experts debate what the Federal Reserve should do about inflation, BBVA Compass economists say in their latest research that the policymaking board shouldn't divert from its timeline on tapering because the U.S. economy is not at risk of tipping into deflation.

Last year, the Fed purchased $85 billion worth of bonds each month to help stimulate the economy. It started tapering those purchases in December amid signs that the economy was modestly improving. However, one indicator closely monitored by the Federal Reserve — the rate of inflation — is much below its target of 2 percent. Sluggish price growth can put a vulnerable economy at risk of deflation, which imposes risks of stagnant growth and can increase the value of the U.S.'s outstanding debt.

That has led to some speculation that the Fed will slow its retreat from stimulus activities, but BBVA Compass economists Shushanik Papanyan and Kim Fraser say it should stay on its current course.

"Although inflation remains lower than expected, our analysis suggests that the risk of deflation in the U.S. is very low," they wrote in their inflationary research. They said the risk, in fact, had "dropped significantly throughout the first quarter of 2014, suggesting that the current slowing inflation rate is considered fairly transitory."

They predict that most prices will moderately rise in the next year, though technology will continue to put downward pressure on prices in all sectors.

"Inflation will stabilize at new historic lows as a result of long-term economic structural changes, such as lower costs of production and labor-to-capital ratios driven by globalization and infiltration of technology," the economists wrote.

Conference call with bank's economists on Tuesday morning

To learn more about inflation, join the bank's economists for a web conference and conference call at 10 a.m. Tuesday, April 1. To access the online meeting, click here. If asked, enter the meeting number 716 051 015 and password bbva. For the conference call, dial 1-877-768-4036 or 1-972-932-2100 and enter access code. A question-and-answer session will follow the presentation.

Led by BBVA Compass Chief Economist Nathaniel Karp, the bank's seven-member research team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The economic research team also follows a variety of issues that affect the Sunbelt states where BBVA Compass operates.

In addition to Karp, Fraser and Papanyan, the bank's economic research group includes Jason Frederick, Marcial Nava, Boyd Nash-Stacey and Michael Soni. Follow their work on Twitter @BBVAResearchUSA and @BBVACompassNews.

About BBVA Group
BBVA Compass is a subsidiary of BBVA Compass Bancshares Inc., a wholly owned subsidiary of BBVA (NYSE: BBVA) (MAD: BBVA). BBVA is a customer-centric global financial services group founded in 1857. The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt region of the United States. Its diversified business is geared toward high-growth markets and relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a long-term vision and applies best practices. The Group is present in the main sustainability indexes. More information about BBVA Group can be found at www.bbva.com.

About BBVA Compass BBVA Compass is a Sunbelt-based financial institution that operates 685 branches, including 350 in Texas, 90 in Alabama, 78 in Arizona, 64 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico. BBVA Compass ranks among the top 25 largest U.S. commercial banks based on deposit market share and ranks among the largest banks in Alabama (2nd), Texas (4th) and Arizona (5th). BBVA Compass has been recognized as one of the leading small business lenders by the Small Business Administration and was recently awarded the 2013 Celent Model Bank Award for its new core banking platform. Additional information about BBVA Compass can be found at www.bbvacompass.com, by following @BBVACompassNews on Twitter or visiting newsroom.bbvacompass.com.

Editor's Note: BBVA Compass is a trade name of Compass Bank, Member FDIC.