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If the future plays out like BNY Mellon's chief economist expects, 2018 is going to be a year for the history books.
That year, investors will see a number of chickens come home to roost, including wage inflation, a spike in oil prices and an upside inflationary surprise, Richard Hoey told CNBC's "Squawk Box" on Wednesday.
The story begins with bonds. Hoey believes the U.S. 10-year Treasury yield will be priced in a "G-4 10-year world" marked by competition to own 10-year German bunds, Japanese government bonds, and U.K. gilts. Quantitative easing in Europe and Japan will dry up the supply of high-grade sovereign bonds, resulting in a slow upward drift—rather than a spike—in U.S. long rates.
"I'm worried about 2018. I think by that time everything will all come due. We'll have wage inflation. The Fed will have to tighten hard," he said.
At the same time that wage inflation builds up due to easy Federal Reserve monetary policy, the oil price collapse of 2014 will generate supply demand changes that will yield an oil price spike in 2018, he said.
Oil producers are set to slowly cut back investment in new production, and the price will come raging back in three to four years, he projected.
"That's kind of what we've seen over history. When you way overdo it on downside on oil prices, give it a couple years, you'll way overdo it on upside," he said.
That's a problem because most U.S. recessions have been triggered by oil price spikes, Hoey said, noting that oil had reached $145 per barrel in July 2008.
"I'm not worried about 2015. I'm not worried about 2016, not too much about 2017. I think the bill comes due in 2018, but that's too far in the future to worry about now," he said.
In Hoey's view, financial regulation of banks has been so restrictive that it has pooled up excess liquidity that hasn't flowed into the economy. A few years down the line, as the U.S. government is no longer launching new rounds of financial restriction on the banking system, the excess liquidity will finally get mobilized, he said.
"I expect an upside inflationary surprise around late 2017, 2018," he said.