WASHINGTON — Chair Jerome Powell said Wednesday that the Federal Reserve will keep pursuing its low-interest rate policies until an economic recovery is well underway, acknowledging that the economy has faltered in recent months.
The Fed said in a statement after its latest policy meeting that hiring and economic growth had slowed, particularly in industries affected by the raging pandemic, notably restaurants, bars, hotels and others involving face-to-face public contact. The officials kept their benchmark short-term rate pegged near zero and said they would keep buying Treasury and mortgage bonds to restrain longer-term borrowing rates and support the economy.
Speaking at a news conference, Powell made clear his belief that the economy will struggle in the coming weeks and months, until widespread vaccinations and government rescue aid eventually fuel a sustained rebound.
“We’re a long way from full recovery,” he said. “Something like 9 million people remain unemployed as a consequence of the pandemic. That’s as many people as lost their jobs at the peak of the global financial crisis and the Great Recession.”
The Fed statement warned that the virus is posing risks to the economy. But the officials removed phrases from their previous statement in December that had said the pandemic was pressuring the economy in the “near term” and posed risks “over the medium term.”
Powell said that language was removed because the Fed policymakers see the pandemic increasingly as a short-term risk that will likely fade as vaccines are distributed more widely. But he also cautioned that the threat remains a serious one, particularly because of the potential harm from new strains of the virus.
“We have not won this yet,” Powell said. “There’s nothing more important to the economy now than people getting vaccinated.”
For now, the job market, in particular, is faltering, with 9.8 million jobs still lost to the pandemic, which erupted 10 months ago. Hiring has slowed for six straight months, and employers shed jobs in December for the first time since April. The job market has sputtered as the pandemic and colder weather have discouraged Americans from travelling, shopping, dining out or visiting entertainment venues. Retail sales have declined for three straight months.
Yet the Fed still envisions a sharp rebound in the second half of the year as the virus is brought under control by vaccines and government-enacted rescue money spreads through the economy. Americans fortunate enough to have kept their jobs have stockpiled massive savings that suggest pent-up demand that could be unleashed, with a big lift to the economy, once consumers increasingly feel safe about resuming their old spending patterns.
Powell was pressed during the news conference on whether the Fed should respond to the recent speculative surge in the prices of some individual stocks, notably shares of GameStop, and whether that buying frenzy suggested a dangerous bubble in overall stock prices. Powell deflected the questions by saying the Fed’s interest rate policies aren’t well-suited to address speculation in the stock market.
In addition, he said, “if you look at what’s really been driving asset prices in the last couple of months, it isn’t monetary policy. It’s expectations about vaccines and also fiscal policy. Those are the news items that have been driving asset values in recent months.”
Powell also noted that the Fed is keeping rates low and buying bonds to support economic growth. Reversing those policies to offset potential bubbles in the stock market, he said, could harm the economy.
“We don’t actually understand the trade-off,” he said. “Will it actually cause more damage, or will it help? I think that’s unresolved.”
The Fed has signalled that it expects to keep its key short-term rate at a record low between zero and 0.25% through at least 2023. Earlier this month, Vice Chair Richard Clarida said he expects the Fed’s bond purchases to extend through the end of this year, which would mean continued downward pressure on long-term loan rates.
The central bank said it will continue its bond purchases until it makes “substantial further progress” toward its goals of maximum employment and stable 2% inflation. Powell said “it is likely to take some time” for that progress to be achieved.
The Fed’s drive to keep long-term rates low have helped hold down mortgage rates and fueled home sales and price increases. Home prices, for example, surged 9% in November compared with a year earlier, its fastest increase in more than six years.
The prospect of significant more government rescue aid and ongoing vaccinations has raised some concern that as Americans eventually release pent-up demand for airline tickets, hotel rooms, new clothes and other goods and services, the economy might accelerate and annual inflation could surge above the Fed’s 2% target.
If many companies don’t initially have the capacity to meet that demand, prices would pick up. Powell, however, dismissed those concerns, pointing to several long-run factors that have restrained inflation for more than a decade, such as an aging population that tends to spend less and save more, technological developments that improve efficiency, and overseas competition.
“Frankly, we welcome somewhat higher inflation,” Powell said. The Fed believes that inflation sustainably at 2% guards against deflation, a drop in prices and wages. And since interest rates include expected levels of inflation, that gives the Fed more room to cut interest rates. “The kind of troubling inflation that people like me grew up with seems far away and unlikely.”
The Fed adopted a framework last year that calls for inflation to average 2% over time. Given that inflation has mostly languished below that level since the Fed adopted it as a target in 2012, policymakers would have to let inflation run above 2% for some time to make up for the years of below-target price increases.
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.
