Economy

BOE Official Tells Hawks That Rates Are Too High for Economy to Withstand

Published

2 years ago

April 20, 2023

]Bank of England policy maker Silvana Tenreyro compared her hawkish colleagues to a “fool in the shower” who scolds himself by being too impatient to wait for the water to warm up, saying interest rates are already too high for the economy to bear.(Bloomberg) — Bank of England policy maker Silvana Tenreyro compared her hawkish colleagues to a “fool in the shower” who scolds himself by being too impatient to wait for the water to warm up, saying interest rates are already too high for the economy to bear.

Tenreyo said rates have been raised too far and inflation will fall below the 2% target in the medium term as a result.

Tenreyro is the chief dove on the BOE’s nine-member Monetary Policy Committee but has just two meetings before her term expires. Her final votes in May and June will be crucial as officials consider whether to pause their most aggressive hiking cycle in four decades.

The BOE has voted to lift its key lending rate 11 times running to 4.25% and markets are betting it pushes ahead with an increase to 4.5% on May 11 after a slew of surprisingly strong wage and inflation data this week.

In her opening remarks at the National Bureau of Economic Research’s annual conference on macroeconomics in the US, Tenreyro said it was the BOE’s job to set rates based on what will happen in the future, not what is happening right now.

Rates, she said, have already been raised more than enough and officials should now wait for the impact to come through.

“The shape of the inflationary shock stemming mostly from the large increase in energy prices, coupled with the long lags with which monetary policy affects the economy, means that the most likely scenario now is that we undershoot the inflation target in the medium term, meaning 2025,” Tenreyro said.

Those who want to keep raising rates she likened to Milton Friedman’s “fool in the shower.”

“When the fool starts the water and it runs cold, he keeps turning the faucet and, eventually, because he’s impatient, he gets burned,” she said.

She said high energy prices have hurt incomes and made the UK poorer, and warned against comparing the UK’s experience with the US. As a net exporter, the US has been enriched by the energy crisis. Policy in the UK therefore needs to respond differently.

Consumption has fully recovered to pre-pandemic trends in the US but remains below trend in the currency bloc and below pre-pandemic levels in the UK, which has been hardest hit of all, Tenreyo demonstrated.

“In the UK, the shape of the inflationary shock stemming mostly from the large increase in energy prices, coupled with the long lags with which monetary policy affects the economy, means that the most likely scenario now is that we undershoot the inflation target in the medium term, meaning 2025,” she said.

“Given policy lags, policy needs to be based on forward looking forecasts and those forecasts at least for the UK are telling us that we may already have tightened too much.”

She said the BOE’s mandate to keep inflation to 2% is flexible enough to respond to shocks, that policy makers should focus on hitting the goal at the end of the forecast horizon.

“We are by mandate not strict inflation targeters,” she said. “We are flexible inflation targeters. We are not intended to keep inflation at 2% whatever the circumstances. We need to always focus on the medium term.”

“It’s about hitting inflation targets at the horizon in which monetary policy can act,” she said.

On quantitative tightening, she said:

“We are using the bank rate as the marginal instrument” of monetary policy. “So we can see directly the effect the effects of any QT on the market yield. We can adjust interest rates if there is too much or too little tightening coming from quantitative tightening.”

—With assistance from Tom Rees.

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

14 hours ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

5 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

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

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

5 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

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

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