Economy

Powell says inflation is still too high and lower economic growth is likely needed to bring it down

Published

11 months ago

October 21, 2023

Federal Reserve Chairman Jerome Powell acknowledged recent signs of cooling inflation, but said Thursday that the central bank would be “resolute” in its commitment to its 2% mandate.

In a widely anticipated speech delivered to the Economic Club of New York, Powell evaded committing to a specific policy path but gave no indication that he was leaning toward a push higher for interest rates.

As Powell spoke, futures market traders erased any possibility of a rate hike in November and decreased the chances of a move even in December. He acknowledged the progress made toward bringing inflation back down to a manageable level but stressed vigilance in pursuing the central bank’s goals.

“Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said in prepared remarks. “We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters.”

“While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent,” Powell added.

The speech comes with questions over where the Fed heads from here after a succession of interest rate hikes aimed at cooling inflation. Stocks turned higher after Powell spoke and the 10-year Treasury yield backed off its highs for the session.

Powell said he doesn’t think rates are too high now.

“Does it feel like policy is too tight right now? I would have to say no,” he said. Still, he noted that “higher interest rates are difficult for everybody.”

Powell noted the progress made toward the Fed’s twin goals.

Federal Reserve Chairman Jerome Powell speaks during a meeting of the Economic Club of New York in New York City, U.S., October 19, 2023.

Brendan Mcdermid | Reuters

In recent days, data has shown that while inflation remains well above the target rate, the pace of monthly increases has decelerated and the annual rate has slowed to 3.7% from more than 9% in June 2022.

“Incoming data over recent months show ongoing progress toward both of our dual mandate goals —maximum employment and stable prices,” he said.

The speech was delayed at the onset by protesters from the group Climate Defiance who charged the dais at the club’s dinner and held up a sign saying “Fed is burning” surrounded by the words “money, futures and planet.”

After a short delay, Powell noted the labor market and economic growth may need to slow to ultimately achieve the Fed’s goal.

“Still, the record suggests that a sustainable return to our 2 percent inflation goal is likely to require a period of below-trend growth and some further softening in labor market conditions,” Powell said.

Fed officials have been using interest rate hikes in part to try to level out a supply-demand imbalance in the jobs market. The Fed has raised rates 11 times since March 2022 for a total of 5.25 percentage points. Coming from the near-zero level for the fed funds rate, that has taken the benchmark rate to its highest level in some 22 years.

“We’re very far from the effective lower bound, and the economy is handling it just fine,” Powell said.

The comments come the same day initial jobless claims hit their lowest weekly level since early in 2023, indicating that the labor market is still tight and could exert upward pressure on inflation.

Robust job creation in September and a slow pace of layoffs could put progress on inflation at risk.

“Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” he said.

In recent days, other Fed officials have said they think the Fed can be patient from here. Even some members who favor tighter monetary policy have said they think the Fed can halt rate hikes at least for now while they watch the lagged impact the rate hikes are expected to have on the economy.

Markets widely expect the Fed to hold off on additional rate hikes, though there remain questions over when officials might begin cutting rates.

Powell was noncommittal on the future of policy.

Given the uncertainties and risks, and how far we have come, the Committee is proceeding carefully. We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks,” he said.

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

Published

9 hours ago

September 17, 2024

Anne Joseph

TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

Published

10 hours ago

September 17, 2024

Anne Joseph

OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

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Economy

Federal money and sales taxes help pump up New Brunswick budget surplus

Published

1 day ago

September 16, 2024

Anne Joseph

FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.

Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.

The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.

Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.

Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.

Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.

Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.

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

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