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 it expects to keep its benchmark short-term 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.
Chair Jerome Powell said he and other Fed officials expect the economy to rebound at a healthy pace next year as viral vaccines become widely distributed. But the next three to six months will likely be painful for the unemployed and small businesses as pandemic cases spike, Powell said at a news conference.
In a statement and in Powell’s answers to reporters, the Fed signalled that it’s prepared to keep rates ultra-low for the long run to help the economy withstand those threats and sustain a recovery. Yet Powell also pointedly stressed the need for further rescue aid from Congress to ease the impact of increased apartment evictions and business failures, and he expressed optimism about the deal under consideration by Congress.
“The case for fiscal policy right now is very, very strong,” Powell said, “and I think that is widely understood now. It’s a very positive thing that we may finally be getting that.”
Congressional leaders appear to be nearing agreement on a $900 billion relief package that would provide extended unemployment benefits, more loans for small businesses and possibly another round of stimulus checks for individual Americans.
“Ongoing fiscal negotiations are more important than anything the Fed did today,” said Eric Winograd, U.S. economist at asset manager AllianceBernstein.
The Fed’s policymakers made just one notable change to the statement they issue after each meeting. On Wednesday, they said the central bank will continue to buy at least $80 billion of Treasurys and $40 billion of mortgage-backed securities a month “until substantial further progress has been made” toward the Fed’s goals of maximum employment and stable prices.
Those purchases are intended to hold down longer-term rates, including borrowing costs for mortgages, auto loans and some business loans. Previously, the Fed had said only that the purchases would continue “over coming months.” The new guidance suggests that the bond buys will continue indefinitely.
“The key message is still that policy will remain unusually accommodative — with near-zero rates and asset purchases — continuing for several more years,” said Paul Ashworth, chief U.S. economist for Capital Economics.
Some economists faulted the phrasing as too evasive. More precise guidance might prevent financial markets from anticipating an end to the purchases before the Fed intends to reduce them.
“The Fed’s forward guidance is disappointingly vague,” Winograd said, and could lead investors to force up interest rates sooner than the Fed would prefer.
In quarterly economic projections that the policymakers issued Wednesday, they painted a brighter picture for next year. Their upgrades likely reflect the expected impact of new coronavirus vaccines. The officials 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 his news conference, Powell acknowledged that challenge.
“The case numbers are so high and so widespread across the country … this will have the effect of suppressing activity,” he said, particularly in-person services such as eating out and travelling.
“At the same time, people are getting vaccinated, now,” he added. “You have to think sometime in the middle of next year, you’ll see people comfortable going out and engaging in a broader range of activities.”
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.
And 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.
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.
Powell also addressed the Fed’s decision Tuesday to join the Network of Central Banks and Supervisors for Greening the Financial System, an organization of 83 central banks and regulators that is considering how to gauge the risk climate change poses for banks’ lending portfolios.
“Climate change is an emerging risk to financial institutions, the financial system and the economy,” Powell said. “And we are, as so many others are, in the very early stages of understanding what that means, what needs to be done about it and by whom.”
Christopher Rugaber And Martin Crutsinger, The Associated Press
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
