Economy

Fed keeps rate near zero but sees brighter economy in 2021 – The Tri-City News

Published

4 years ago

December 16, 2020

WASHINGTON — The Federal Reserve said Wednesday that it will keep buying government bonds until the economy makes “substantial” progress — a step intended to reassure financial markets and keep long-term borrowing rates low indefinitely.

The Fed also reiterated after its latest policy meeting that expects keep its short-term benchmark interest rate near zero through at least 2023. The Fed has kept its key rate there since March, when it took a range of extraordinary steps to fight the pandemic recession by keeping credit flowing.

In a series of economic projections Wednesday, though, Fed officials painted a brighter picture for next year, compared with its previous projections in September. The improvement likely reflects the expected impact of new coronavirus vaccines. The policymakers now foresee the economy contracting 2.4% this year, less than the 3.7% decline it envisioned in September. For next year, in anticipation of a rebound, the officials have upgraded their growth forecast from 4% to 4.2%.

By the end of 2021, the Fed expects the unemployment rate to fall to 5% from the current 6.7% — lower than the 5.5% rate it had forecast in September.

The Fed’s latest policy statement coincides with an economy that is stumbling and might even shrink over the winter as the raging pandemic forces new business restrictions and keeps many consumers at home. Weighing the bleak short-term outlook and the brighter long-term picture has complicated the Fed’s policymaking as it assesses how much more stimulus to pursue.

At a news conference, Fed Chair Jerome Powell acknowledged that challenge. While the economy and job market should rebound strongly in the second half of 2021, he said, “the issue is the next four to five months” as the virus keeps weakening growth.

Powell also noted, as he often has before, that the pandemic recession has fallen most painfully on the most disadvantaged American households.

“Economic dislocation has upended many lives and created great uncertainty about the future,” Powell said.

With its benchmark rate already near zero, the Fed has turned to bond purchases, buying $80 billion of Treasury securities and $40 billion of mortgage-backed bonds a month. Those moves indirectly lower rates on mortgages, auto loans and credit cards, with the aim of encouraging more borrowing and spending.

Before Wednesday, the Fed had given no guidance on how long it would buy Treasury and mortgage bonds. Saying it wants to await “substantial” economic progress suggested that the central bank envisions a lengthy time frame for those purchases.

Powell and many other Fed officials have repeatedly urged Congress to approve more economic aid to carry the economy through what’s expected to be a financially painful winter, with cold weather foreclosing outdoor dining and rising virus cases discouraging many Americans from shopping in stores, going to gyms or travelling.

Congressional leaders are considering a $748 billion relief package that would provide extended unemployment benefits, more loans for small businesses and possibly another round of stimulus checks for individual Americans.

At his news conference, Powell applauded Congress’ belated move to enact another rescue aid plan.

“This looks like a time where what is really needed is fiscal policy,” he said, “and it’s a very positive thing that we may finally be getting that.”

Recent economic reports have generally reflected a sharply slowing recovery. On Wednesday, the Commerce Department reported the sharpest drop in retail sales in seven months. Americans held back on spending in November at the start of the holiday shopping season, which typically accounts for a quarter or more of retailers’ annual sales.

Sales tumbled across the board — from clothing, electronic and furniture stores to department stores and restaurants. The only two bright spots were online and grocery store sales.

The retail sales report was the latest evidence that the pandemic is slowing the U.S. economy as businesses grapple with tighter restrictions and millions of consumers stay away from stores.

Last week, the number of people seeking unemployment aid rose for the third time in four weeks, evidence that companies are increasingly cutting jobs nine months since the erupted of the pandemic caused a deep recession.

The Fed’s new guidance on bond purchases marks a shift from its previous statements, when it said it would simply keep buying bonds “over the coming months.”

But providing a more specific timeline ensures that financial markets will not anticipate an earlier reduction in the purchases that could cause investors to push up rates earlier than the Fed wants. Longer-term rates reflect investor expectations for future borrowing costs. So reducing expected future rates keeps current rates lower.

“It’s helpful to be as clear as you can be about your intentions,” said Bill English, a former Fed official who teaches finance at the Yale School of Management.

Some economists had expected the Fed to announce a shift in its bond purchases by buying more longer-term bonds and fewer shorter-term securities — a step they could still take in future meetings.

Such a move would seek to deliver more immediate help for consumers and businesses. Buying more 10-year Treasurys, for example, lowers their yield, and the 10-year yield influences mortgage rates and other borrowing costs. Yields on two- or three-year bonds, by contrast, don’t affect many other rates.

But the Fed may prefer to keep that step in reserve in the event that the economy significantly worsens next year. Or it may also see it as a more effective move when the economy is reopening and people and businesses want to borrow more and expand.

On Wednesday, Powell stressed that the Fed will consider all its options to strengthen growth.

“We are committed to using our full range of tools to support the economy .. until the job is done,” he said. “No one should doubt that.”

Christopher Rugaber And Martin Crutsinger, The Associated Press

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

Published

2 days ago

September 10, 2024

Anne Joseph

VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

Published

2 days ago

September 10, 2024

Anne Joseph

NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

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Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

Published

2 days ago

September 10, 2024

Anne Joseph

HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

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