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Clarida Says Economy Facing Lengthy Recovery Amid Uncertainty – Yahoo Canada Finance

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Clarida Says Economy Facing Lengthy Recovery Amid Uncertainty

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(Bloomberg) — Federal Reserve Vice Chair Richard Clarida said the U.S. economy faces a long and uncertain recovery from the Covid-19 pandemic, and requires continued support from monetary and fiscal policy.

“It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary — and likely fiscal — policy will be needed,” Clarida said Monday in a speech to an online event hosted by the American Bankers Association. “The economic outlook is unusually uncertain.” His prepared remarks reprise a speech he gave Oct. 14.

The Fed slashed rates to nearly zero in mid-March as the pandemic took hold and has signaled it expects to keep them there through at least 2023, according to forecasts released last month. Clarida said the timing of rate liftoff will be governed by the speed of the economic recovery, not the calendar.

“We expect to keep rates in the current range, which is just north of zero, until we’ve actually got inflation back to 2% on at least a year-over-year basis,” he said in response to a question from the moderator after his speech. “We would want that to be consistent with a very healthy labor market, and also the prospect for inflation to moderately exceed 2% for some time.”

“If the economy recovers faster and sooner that would mean earlier liftoff, and if it recovers more slowly that would mean later liftoff,” he said.

The U.S. economy’s rebound has shown some signs of slowing in recent weeks as fiscal stimulus passed in early spring has expired and the Covid-19 virus makes an autumn resurgence. The most recent economic data has been mixed.

Employment, consumer spending and consumer sentiment have each made important strides but remain well below pre-pandemic levels. Manufacturing unexpectedly declined in September.

The chance that lawmakers in Washington will agree on a new round of spending before the Nov. 3 election appears low but not dead. Democratic House Speaker Nancy Pelosi on Sunday set Tuesday as a deadline for more progress with the White House on a deal, extending her previous deadline by a day. President Donald Trump renewed his offer to go beyond the dollar amounts now on the table.

The spread of Covid-19, meanwhile, has picked up in several countries around the world. Global coronavirus cases have exceeded the 40 million mark, with new cases in the U.S. averaging more than 50,000 a day. Millions of Europeans are facing tighter restrictions on movement, with London and Paris enforcing stricter curbs.

Clarida said the Fed had made important changes in banking regulation and supervision to help keep credit flowing to households and firms. The central bank is also engaged in efforts to modernize the Community Reinvestment Act, which aims to address racial and geographic inequities in the access to credit, he said.

(Updates with Clarida answers to post-speech Q&A in the fifth paragraph.)

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Euro zone economy to gain momentum in 2021 on vaccine hopes: Reuters poll – The Journal Pioneer

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By Richa Rebello and Manjul Paul

BENGALURU (Reuters) – The euro zone economy will contract again this quarter as renewed lockdown measures stifle activity, according to a Reuters poll which showed the bloc’s GDP would then return to pre-crisis levels within two years.

Hopes for a coronavirus vaccine and additional support from the European Central Bank this month meant quarterly growth forecasts for next year were upgraded in the poll conducted from Nov. 26-Dec. 2.

“We now assume vaccines will be rolled out in the euro zone next year and most restrictions on economic activity are lifted during Q2. As a result, GDP increases by around 5% next year, regaining its pre-COVID level in early 2022,” said Andrew Kenningham, chief Europe economist at Capital Economics.

“There are still big risks to this forecast. There could yet be a third wave of the virus, vaccine distribution could run into political or logistical problems, and governments could be slower to ease restrictions. On the other hand, the vaccines could be more effective or easier to roll out than anticipated”.

Nearly 80% of respondents, or 36 of 45, who replied to an extra question said the economy would return to pre-crisis levels within two years.

That was a major turnaround in expectations from August when more than 70% of economists said it would take two or more years to reach that level.

The wider poll showed after contracting 2.6% this quarter, the economy would grow 1.1% in the first quarter of 2021 compared with 0.8% in the last poll. It was then predicted to expand 2.0% and 1.8% in Q2 and Q3, better than median predictions of 1.8%, 1.2% in November.

On an annual basis, the economy was expected to shrink 7.4% this year, and grow 5.0% in 2021 largely unchanged from the last poll. For 2022, the growth forecast was upgraded to 3.5% from 3.1%. (Graphic: Reuters Poll: Euro zone economy and ECB monetary policy outlook, https://fingfx.thomsonreuters.com/gfx/polling/xlbvgzaxjpq/Reuters%20Poll%20-%20ECB%20and%20EZ%20outlook%20-%20December%202020.PNG)

That pick-up in growth will not filter through to inflation which was expected to remain far below the European Central Bank’s target of just below 2%, averaging 0.3% in 2020. 0.9% in 2021 and 1.3% in 2022.

Having remained in negative territory for the fourth straight month in November, inflation is likely to be a point of focus when the ECB’s Governing Council meets next week.

The ECB has launched a strategic review after years of inflation undershooting its target and nearly 80% of respondents to an extra question, or 33 of 43 economists, said the ECB would change its inflation target.

While a smaller section of poll participants commented on what the target would be, most said the ECB would allow more leeway around 2% or adopt an average inflation targeting framework, similar to the Federal Reserve’s recent policy.

“We are probably going to see something which looks a little bit similar to the Fed in the sense that this will be more of a symmetrical target. By changing to a symmetrical target, you build in a little more tolerance for higher inflation in the future,” said Elwin de Groot, head of macro strategy at Rabobank.

“This cements the idea rates will stay very low in the coming years… but the past ten years suggest these very relaxed policy settings are not sufficient to really create more growth and inflation. What you really need is a combination of monetary and fiscal policy.”

The ECB was expected to top up its pandemic-related bond purchases by 500 billion euros, at its Dec. 10 meeting, extending the programme by six months until December 2021, a Nov. 18 poll found. It was also predicted to change the terms of its targeted long-term loans to financial institutions.

(Reporting by Richa Rebello and Manjul Paul; Polling by Tushar Goenka and Hari Kishan; Editing by Jonathan Cable and Toby Chopra)

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Euro zone economy to gain momentum in 2021 on vaccine hopes: Reuters poll – TheChronicleHerald.ca

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By Richa Rebello and Manjul Paul

BENGALURU (Reuters) – The euro zone economy will contract again this quarter as renewed lockdown measures stifle activity, according to a Reuters poll which showed the bloc’s GDP would then return to pre-crisis levels within two years.

Hopes for a coronavirus vaccine and additional support from the European Central Bank this month meant quarterly growth forecasts for next year were upgraded in the poll conducted from Nov. 26-Dec. 2.

“We now assume vaccines will be rolled out in the euro zone next year and most restrictions on economic activity are lifted during Q2. As a result, GDP increases by around 5% next year, regaining its pre-COVID level in early 2022,” said Andrew Kenningham, chief Europe economist at Capital Economics.

“There are still big risks to this forecast. There could yet be a third wave of the virus, vaccine distribution could run into political or logistical problems, and governments could be slower to ease restrictions. On the other hand, the vaccines could be more effective or easier to roll out than anticipated”.

Nearly 80% of respondents, or 36 of 45, who replied to an extra question said the economy would return to pre-crisis levels within two years.

That was a major turnaround in expectations from August when more than 70% of economists said it would take two or more years to reach that level.

The wider poll showed after contracting 2.6% this quarter, the economy would grow 1.1% in the first quarter of 2021 compared with 0.8% in the last poll. It was then predicted to expand 2.0% and 1.8% in Q2 and Q3, better than median predictions of 1.8%, 1.2% in November.

On an annual basis, the economy was expected to shrink 7.4% this year, and grow 5.0% in 2021 largely unchanged from the last poll. For 2022, the growth forecast was upgraded to 3.5% from 3.1%. (Graphic: Reuters Poll: Euro zone economy and ECB monetary policy outlook, https://fingfx.thomsonreuters.com/gfx/polling/xlbvgzaxjpq/Reuters%20Poll%20-%20ECB%20and%20EZ%20outlook%20-%20December%202020.PNG)

That pick-up in growth will not filter through to inflation which was expected to remain far below the European Central Bank’s target of just below 2%, averaging 0.3% in 2020. 0.9% in 2021 and 1.3% in 2022.

Having remained in negative territory for the fourth straight month in November, inflation is likely to be a point of focus when the ECB’s Governing Council meets next week.

The ECB has launched a strategic review after years of inflation undershooting its target and nearly 80% of respondents to an extra question, or 33 of 43 economists, said the ECB would change its inflation target.

While a smaller section of poll participants commented on what the target would be, most said the ECB would allow more leeway around 2% or adopt an average inflation targeting framework, similar to the Federal Reserve’s recent policy.

“We are probably going to see something which looks a little bit similar to the Fed in the sense that this will be more of a symmetrical target. By changing to a symmetrical target, you build in a little more tolerance for higher inflation in the future,” said Elwin de Groot, head of macro strategy at Rabobank.

“This cements the idea rates will stay very low in the coming years… but the past ten years suggest these very relaxed policy settings are not sufficient to really create more growth and inflation. What you really need is a combination of monetary and fiscal policy.”

The ECB was expected to top up its pandemic-related bond purchases by 500 billion euros, at its Dec. 10 meeting, extending the programme by six months until December 2021, a Nov. 18 poll found. It was also predicted to change the terms of its targeted long-term loans to financial institutions.

(Reporting by Richa Rebello and Manjul Paul; Polling by Tushar Goenka and Hari Kishan; Editing by Jonathan Cable and Toby Chopra)

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Canadian dollar strengthens as economy grows at a record pace – The Globe and Mail

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The Canadian dollar strengthened against its U.S. counterpart on Tuesday as the greenback broadly declined and domestic data showed the economy growing at a record pace in the third quarter.

Canada’s economy grew by 40.5 per cent on an annualized basis in the third quarter, rebounding from a historic plunge in the second quarter, as businesses and stores reopened from COVID-19 lockdowns, Statistics Canada said.

Separate data, from IHS Markit, showed that Canadian manufacturing activity expanded for the fifth straight month in November as output and new orders climbed.

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The U.S. dollar fell against a basket of major currencies on growing speculation that the Federal Reserve will act to support the economy through a tough winter as coronavirus cases rise.

Canada is also seeing a surge in infections. On Monday, Ottawa projected the budget deficit would hit a historic C$381.6 billion on COVID-19 emergency aid.

The Canadian dollar was trading 0.4 per cent higher at 1.2953 to the greenback, or 77.20 U.S. cents, having traded in a range of 1.2942 to 1.3006.

On Monday, the loonie notched its strongest intraday level in over two years at 1.2919. It ended November up 2.4 per cent.

The price of oil, one of Canada’s major exports, fell on Tuesday as investors awaited direction from OPEC and its allies after the producers postponed a formal meeting to decide whether to lift output from January. U.S. crude prices were down 0.8 per cent at $44.99 a barrel.

Canadian government bond yields were higher across a steeper curve in sympathy with U.S. Treasuries as Wall Street rallied. The 10-year was up 2.9 basis points at 0.709 per cent.

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