The Federal Reserve has been thrust into the lead role of saving the U.S. economy from the coronavirus pandemic, taking on the extraordinary task of rescuing households, businesses and local governments as Washington lawmakers have spent weeks debating how to come to grips with the crisis.
In just over a week, the Fed has slashed its main borrowing rate to zero, pledged unlimited purchases of U.S. government bonds, announced plans to back state and local governments, and even promised to buy debt from large corporations. It has said it will set up a program to lend to small businesses and eased pressure on rates for student loans, auto loans and credit card debt.
All told, the support for the economy will easily total trillions of dollars, with more plans in the works.
The calls for the Fed to lend to all corners of the economy are striking given Congress’s move just 10 years ago to restrict its emergency lending authority after the last economic meltdown because its power was deemed too far-reaching.
But officials inside the Fed — and even critics of the central bank — say that given the magnitude of the crisis, it had little choice to but to launch a stunning array of initiatives to help soften the blow of a recession or even to stave off a years-long depression.
“I am a Fed skeptic. I want to limit their power,” said Sheila Bair, who helped lead the country through the last financial crisis as head of the Federal Deposit Insurance Corp. But the “sheer magnitude of the problem,” she said, “justifies them really stretching the limits of their authority.”
Thus, the Fed under Chair Jerome Powell, which has endured more than a year of abuse from President Donald Trump for not doing more to boost the economy, is now embarked on the quickest and most massive response to a crisis in its more than 100-year history.
Unlike in the 2008 crisis, when the Fed sparked an outcry for bailing out nonbanks like insurance giant AIG and investment bank Bear Stearns, it now has formal buy-in from the Treasury Department for many of its emergency programs. Thanks to the landmark 2010 Dodd-Frank Act, Treasury Secretary Steven Mnuchin has to authorize the central bank to lend to such non-bank companies in emergencies, and his department has kicked in taxpayer money to cover losses if borrowers default.
The stimulus package that Congress is on the brink of approving will vastly expand the amount of cash available to cushion those losses. But, unlike the controversial 2008 Troubled Asset Relief Program, the scope of lending will be larger than just appropriated funds.
Because Treasury has been supplying 10 percent of the funding for Fed emergency lending programs, $425 billion from Treasury could translate to more than $4 trillion in lending to businesses, consumers, local governments, and money market mutual funds.
“They opened up the channels, and when the Treasury gets more money, they’ll be able to scale up these programs,” former Fed Vice Chairman Donald Kohn said.
But the Fed will still be under a microscope as it implements these programs, especially in lending to large corporations. The central bank, seeking to head off criticism from lawmakers, has already said companies will face restrictions on buying back their own stock — which boosts share prices and disproportionately benefits wealthier stockholders — and on CEO bonuses.
The Fed will also be bringing in private-sector financial firms to help administer the programs, a potential line of attack it could face down the road; the central bank has already hired asset manager BlackRock for that purpose.
Still, the amount of help that is directly targeted at consumers and small businesses will soften the criticism of moves to help larger firms, said Amanda Fischer, a former Democratic congressional aide who now directs policy at the Washington Center for Equitable Growth.
She said the Fed is usually inclined to support markets rather than people directly. “Now we see cracks” in that approach as the central bank broadens its focus to also embrace Main Street, she added.
That’s partly because of the sheer scale of this crisis and pressure it is getting from even Republicans, including Trump, to do more, Fischer said.
Many free-market Republicans, who have balked at the central bank for its large footprint in the past, are sounding a different note now. Prominent GOP lawmakers like Sen. Pat Toomey (R-Pa.) and Rep. Patrick McHenry (R-N.C.) have pushed for the Fed to do more to support businesses during this crisis.
The central bank’s bond holdings are ballooning in the midst of the pandemic, a topic that has also sparked complaints from Republicans in the past. Its massive purchases of Treasury securities and mortgage-backed securities will over the course of a week equal its second round of asset purchases in the wake of the 2008 crisis, which took place over seven months.
That’s part of an effort to keep the key markets for U.S. government debt and mortgages, as well as all the markets that those assets feed into, from freezing up.
All these unprecedented moves could transform how the public views the Fed’s role in downturns, although support for similar actions in the future “will depend a lot on where the crisis begins and who’s paying the price,” said Kohn, the former Fed official.
Bair said conversations about the Fed’s role should be put on hold in recognition of just how broad the economic damage could be. She added that because the Fed prints money and controls the rails of the payments system, using it as a medium for bolstering the economy is the quickest option.
“They’re a very efficient transmission mechanism,” she said of the central bank. “If you think of them as more of administrators as opposed to a piggy bank, that might be a better way of looking at it.”
Still, there are limits to what the Fed can do; one of the ways the central bank has historically sought to protect its authority is by keeping its goals relatively narrow and noncontroversial. For example, it has declined to outright purchase debt from cities and governments.
Glenn Hubbard, dean emeritus at Columbia Business School and former chief economist to President George W. Bush, said Congress needs to act to do its part, including sending money directly to people, which the Fed doesn’t have the authority to do.
As for the Fed’s actions: “Any time you get into something that has any risk, you’re going to have political concerns about the Fed, but the Fed is a lender of last resort,” he said. “It’s the right thing to do.”
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.
