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U.S. Federal Reserve hikes interest rate by largest amount since 1994 – The Globe and Mail

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U.S. Federal Reserve Chair Jerome Powell speaks during a news conference on interest rates, the economy and monetary policy actions, at the Federal Reserve Building in Washington on June 15.OLIVIER DOULIERY/AFP/Getty Images

The U.S. Federal Reserve has announced its largest interest rate increase since 1994, and said that it would continue pushing borrowing costs higher in an effort to restrain the highest inflation in four decades.

Officials announced a 0.75 percentage point interest rate increase on Wednesday, lifting the benchmark federal funds rate to between 1.5 per cent and 1.75 per cent.

The move marks an abrupt shift at the world’s largest central bank, and suggests a willingness by the central bankers to squeeze the U.S. economy to prevent prices from spiralling further out of control.

Higher interest rates make borrowing more expensive for households and businesses, with the aim of reducing the amount of demand in the economy. This slows the pace of growth in consumer prices. But it can also lead to a recession if the central bank miscalculates and tightens monetary policy too much, curtailing consumer spending and business investment, and pushing up unemployment.

Bank of Canada would be wise to match U.S. Federal Reserve’s plans for aggressive rate hikes

The Fed’s interest rate hikes in recent months and increasingly hawkish language have already led to tighter credit conditions in the United States and around the world. Global borrowing costs tend to follow what happens in the U.S. That’s led to a decline in house prices in some markets and a sharp sell-off in financial assets such as stocks.

Fed officials had previously signalled that they would announce an increase of a half a point this week. But they were surprised in the days leading to the rate decision by data that showed the rate of inflation continues to march higher. It hit a 40-year-high of 8.6 per cent in May.

Reports published in recent days also showed that Americans are beginning to expect persistently high inflation – a situation that makes the Fed’s job of getting the rate of inflation back to 2 per cent much more difficult.

“We’ve been expecting progress [on inflation], and we didn’t get that, we got sort of the opposite,” Fed chair Jerome Powell said at a news conference after the rate announcement.

Inflation was already at a multidecade high at the start of the year, eating into U.S. wages and savings. Russia’s invasion of Ukraine has made matters worse by pushing global oil and food prices sharply higher in recent months.

This has forced central banks, including the Bank of Canada, to begin raising interest rates rapidly in the hope of preventing high inflation from becoming entrenched, as happened in the 1970s and early 1980s.

Mr. Powell said he did not expect moves of 75 basis points to become common. But he said the Fed would likely consider a hike of 50 or 75 basis points at its meeting in July, with the goal of getting interest rates to a “modestly restrictive level” by the end of the year. (A basis point is one 100th of a percentage point.)

Economic projections published on Wednesday show that Fed officials now expect the federal funds rate will rise to 3.4 per cent by the end of the year, and to 3.8 per cent next year. That’s a stark change from March, when officials expected the benchmark rate to hit 1.9 per cent by the end of the year and 2.8 per cent by 2023.

“We aren’t going to declare victory until we really see convincing evidence, compelling evidence that inflation is coming down,” Mr. Powell said.

After the Fed’s mega rate hike, stock markets vacillated between fear and relief, capturing the tortured relationship between equities and interest rates. Despite the Fed’s hawkish turn, the S&P 500 index gained 1.46 per cent on the day, while the S&P/TSX Composite Index advanced by 0.32 per cent.

This follows a dramatic sell-off on Monday, after the idea that the Fed would move 75 basis points became widespread in financial markets.

In general, equity investors prefer low rates – they make stocks more attractive than low-yielding bonds, and their economic effect tends to boost corporate earnings by making it cheaper to borrow.

This had been the case through the first two years of the pandemic, when emergency central bank action on rates helped orchestrate a monumental rebound in stock markets. From the lows of March, 2020, the S&P/TSX Composite Index roughly doubled over the next two years, while the S&P 500 index gained about 115 per cent.

Now, having lost control of inflation, central banks no longer have the luxury of coming to the stock market’s rescue as it has in the past, by slashing rates when appetite for risky assets such as stocks crumbles.

“The Fed’s primary goal is to tame inflation right now, and not to boost the equity markets,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, wrote in a note. “And depressed market conditions seem necessary in achieving that goal.”

But investors generally seem to have grasped that aggressive policy changes are required to conquer the worst inflation threat in a generation. Influential people in the U.S. financial community, such as activist investor Bill Ackman, have called for enormous rate hikes to restore the Fed’s credibility with financial markets.

The accelerated pace of interest rate hikes is risky. If the Fed tightens monetary policy too much, it could push the U.S. economy into a recession. The Fed’s updated economic forecast, published on Wednesday, doesn’t show the country’s economy falling into recession, but it does show growth slowing and unemployment rising.

The Fed now expects 1.7-per-cent annual GDP growth this year and next year, down from its March projection of 2.8-per-cent growth this year and 2.2 per cent next year. Meanwhile, it expects the rate of unemployment to rise from 3.6 per cent today to 3.9 per cent next year and 4.1 per cent in 2024.

“We don’t seek to put people out of work,” Mr. Powell said. “Of course, we never think too many people are working and fewer people need to have jobs. But we also think you really cannot have the kind of [robust] labour market we want without price stability.”

He said in May that he expects the U.S. economy can achieve a “softish” landing: reducing inflation without causing a sharp rise in unemployment. He reiterated this point on Wednesday, although he acknowledged that high oil prices and the conflict in Ukraine are making a soft landing harder to achieve.

“Many factors we don’t control are going to play a very significant role in deciding whether that’s possible or not,” Mr. Powell said. “There is a path for us to get there. It’s not getting easier, it’s getting more challenging.”

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The #1 Skill I Look For When Hiring

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September 17, 2024

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File this column under “for what it’s worth.”

“Communication is one of the most important skills you require for a successful life.” — Catherine Pulsifer, author.

I’m one hundred percent in agreement with Pulsifer, which is why my evaluation of candidates begins with their writing skills. If a candidate’s writing skills and verbal communication skills, which I’ll assess when interviewing, aren’t well above average, I’ll pass on them regardless of their skills and experience.

 

Why?

 

Because business is fundamentally about getting other people to do things—getting employees to be productive, getting customers to buy your products or services, and getting vendors to agree to a counteroffer price. In business, as in life in general, you can’t make anything happen without effective communication; this is especially true when job searching when your writing is often an employer’s first impression of you.

 

Think of all the writing you engage in during a job search (resumes, cover letters, emails, texts) and all your other writing (LinkedIn profile, as well as posts and comments, blogs, articles, tweets, etc.) employers will read when they Google you to determine if you’re interview-worthy.

 

With so much of our communication today taking place via writing (email, text, collaboration platforms such as Microsoft Teams, Slack, ClickUp, WhatsApp and Rocket.Chat), the importance of proficient writing skills can’t be overstated.

 

When assessing a candidate’s writing skills, you probably think I’m looking for grammar and spelling errors. Although error-free writing is important—it shows professionalism and attention to detail—it’s not the primary reason I look at a candidate’s writing skills.

 

The way someone writes reveals how they think.

 

  • Clear writing = Clear thinking
  • Structured paragraphs = Structured mind
  • Impactful sentences = Impactful ideas

 

Effective writing isn’t about using sophisticated vocabulary. Hemingway demonstrated that deceptively simple, stripped-down prose can captivate readers. Effective writing takes intricate thoughts and presents them in a way that makes the reader think, “Damn! Why didn’t I see it that way?” A good writer is a dead giveaway for a good thinker. More than ever, the business world needs “good thinkers.”

 

Therefore, when I come across a candidate who’s a good writer, hence a good thinker, I know they’re likely to be able to write:

 

  • Emails that don’t get deleted immediately and are responded to
  • Simple, concise, and unambiguous instructions
  • Pitches that are likely to get read
  • Social media content that stops thumbs
  • Human-sounding website copy
  • Persuasively, while attuned to the reader’s possible sensitivities

 

Now, let’s talk about the elephant in the room: AI, which job seekers are using en masse. Earlier this year, I wrote that AI’s ability to hyper-increase an employee’s productivity—AI is still in its infancy; we’ve seen nothing yet—in certain professions, such as writing, sales and marketing, computer programming, office and admin, and customer service, makes it a “fewer employees needed” tool, which understandably greatly appeals to employers. In my opinion, the recent layoffs aren’t related to the economy; they’re due to employers adopting AI. Additionally, companies are trying to balance investing in AI with cost-cutting measures. CEOs who’ve previously said, “Our people are everything,” have arguably created today’s job market by obsessively focusing on AI to gain competitive advantages and reduce their largest expense, their payroll.

 

It wouldn’t be a stretch to assume that most AI usage involves generating written content, content that’s obvious to me, and likely to you as well, to have been written by AI. However, here’s the twist: I don’t particularly care.

 

Why?

 

Because the fundamental skill I’m looking for is the ability to organize thoughts and communicate effectively. What I care about is whether the candidate can take AI-generated content and transform it into something uniquely valuable. If they can, they’re demonstrating the skills of being a good thinker and communicator. It’s like being a great DJ; anyone can push play, but it takes skill to read a room and mix music that gets people pumped.

 

Using AI requires prompting effectively, which requires good writing skills to write clear and precise instructions that guide the AI to produce desired outcomes. Prompting AI effectively requires understanding structure, flow and impact. You need to know how to shape raw information, such as milestones throughout your career when you achieved quantitative results, into a compelling narrative.

So, what’s the best way to gain and enhance your writing skills? As with any skill, you’ve got to work at it.

Two rules guide my writing:

 

  • Use strong verbs and nouns instead of relying on adverbs, such as “She dashed to the store.” instead of “She ran quickly to the store.” or “He whispered to the child.” instead of “He spoke softly to the child.”
  • Avoid using long words when a shorter one will do, such as “use” instead of “utilize” or “ask” instead of “inquire.” As attention spans get shorter, I aim for clarity, simplicity and, most importantly, brevity in my writing.

 

Don’t just string words together; learn to organize your thoughts, think critically, and communicate clearly. Solid writing skills will significantly set you apart from your competition, giving you an advantage in your job search and career.

_____________________________________________________________________

 

Nick Kossovan, a well-seasoned veteran of the corporate landscape, offers “unsweetened” job search advice. You can send Nick your questions to artoffindingwork@gmail.com.

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Politics likely pushed Air Canada toward deal with ‘unheard of’ gains for pilots

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September 16, 2024

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MONTREAL – Politics, public opinion and salary hikes south of the border helped push Air Canada toward a deal that secures major pay gains for pilots, experts say.

Hammered out over the weekend, the would-be agreement includes a cumulative wage hike of nearly 42 per cent over four years — an enormous bump by historical standards — according to one source who was not authorized to speak publicly on the matter. The previous 10-year contract granted increases of just two per cent annually.

The federal government’s stated unwillingness to step in paved the way for a deal, noted John Gradek, after Prime Minister Justin Trudeau made it plain the two sides should hash one out themselves.

“Public opinion basically pressed the federal cabinet, including the prime minister, to keep their hands clear of negotiations and looking at imposing a settlement,” said Gradek, who teaches aviation management at McGill University.

After late-night talks at a hotel near Toronto’s Pearson airport, the country’s biggest airline and the union representing 5,200-plus aviators announced early Sunday morning they had reached a tentative agreement, averting a strike that would have grounded flights and affected some 110,000 passengers daily.

The relative precariousness of the Liberal minority government as well as a push to appear more pro-labour underlay the prime minister’s hands-off approach to the negotiations.

Trudeau said Friday the government would not step in to fix the impasse — unlike during a massive railway work stoppage last month and a strike by WestJet mechanics over the Canada Day long weekend that workers claimed road roughshod over their constitutional right to collective bargaining. Trudeau said the government respects the right to strike and would only intervene if it became apparent no negotiated deal was possible.

“They felt that they really didn’t want to try for a third attempt at intervention and basically said, ‘Let’s let the airline decide how they want to deal with this one,'” said Gradek.

“Air Canada ran out of support as the week wore on, and by the time they got to Friday night, Saturday morning, there was nothing left for them to do but to basically try to get a deal set up and accepted by ALPA (Air Line Pilots Association).”

Trudeau’s government was also unlikely to consider back-to-work legislation after the NDP tore up its agreement to support the Liberal minority in Parliament, Gradek said. Conservative Leader Pierre Poilievre, whose party has traditionally toed a more pro-business line, also said last week that Tories “stand with the pilots” and swore off “pre-empting” the negotiations.

Air Canada CEO Michael Rousseau had asked Ottawa on Thursday to impose binding arbitration pre-emptively — “before any travel disruption starts” — if talks failed. Backed by business leaders, he’d hoped for an effective repeat of the Conservatives’ move to head off a strike in 2012 by legislating Air Canada pilots and ground crew to stick to their posts before any work stoppage could start.

The request may have fallen flat, however. Gradek said he believes there was less anxiety over the fallout from an airline strike than from the countrywide railway shutdown.

He also speculated that public frustration over thousands of cancelled flights would have flowed toward Air Canada rather than Ottawa, prompting the carrier to concede to a deal yielding “unheard of” gains for employees.

“It really was a total collapse of the Air Canada bargaining position,” he said.

Pilots are slated to vote in the coming weeks on the four-year contract.

Last year, pilots at Delta Air Lines, United Airlines and American Airlines secured agreements that included four-year pay boosts ranging from 34 per cent to 40 per cent, ramping up pressure on other carriers to raise wages.

After more than a year of bargaining, Air Canada put forward an offer in August centred around a 30 per cent wage hike over four years.

But the final deal, should union members approve it, grants a 26 per cent increase in the first year alone, retroactive to September 2023, according to the source. Three wage bumps of four per cent would follow in 2024 through 2026.

Passengers may wind up shouldering some of that financial load, one expert noted.

“At the end of the day, it’s all us consumers who are paying,” said Barry Prentice, who heads the University of Manitoba’s transport institute.

Higher fares may be mitigated by the persistence of budget carrier Flair Airlines and the rapid expansion of Porter Airlines — a growing Air Canada rival — as well as waning demand for leisure trips. Corporate travel also remains below pre-COVID-19 levels.

Air Canada said Sunday the tentative contract “recognizes the contributions and professionalism of Air Canada’s pilot group, while providing a framework for the future growth of the airline.”

The union issued a statement saying that, if ratified, the agreement will generate about $1.9 billion of additional value for Air Canada pilots over the course of the deal.

Meanwhile, labour tension with cabin crew looms on the horizon. Air Canada is poised to kick off negotiations with the union representing more than 10,000 flight attendants this year before the contract expires on March 31.

This report by The Canadian Press was first published Sept. 16, 2024.

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Federal $500M bailout for Muskrat Falls power delays to keep N.S. rate hikes in check

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September 16, 2024

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HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.

Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.

Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”

Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.

The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.

Those delays forced Nova Scotia Power to spend more on generating its own electricity.

This report by The Canadian Press was first published Sept. 16, 2024.

The Canadian Press. All rights reserved.

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