WASHINGTON (AP) — Federal Reserve Chair Jerome Powell said Thursday that inflation remains too high and that bringing it down to the Fed’s target level will likely require a slower-growing economy and job market.
Powell noted that inflation has cooled significantly from a year ago. But he cautioned that the economy is growing faster than the Fed had expected and could continue to keep inflation elevated. As a result, the Fed chair said, it’s not yet clear whether inflation is on a steady path back to the Fed’s 2% target.
“We certainly have a very resilient economy on our hands,” Powell said in a discussion at the Economic Club of New York. “Many forecasts called for the U.S. economy to be in recession this year. Not only has that not happened; growth is now running for this year above its longer-run trend. So that’s been a surprise.”
Powell’s comments echoed speeches from other Fed officials this week, which have underscored that they are grappling with an unusual and unexpected development: Inflation is slowing even while economic growth and hiring have been robust.
In its drive to tame inflation, the Fed has raised its key rate 11 times since March 2022 to about 5.4%, its highest level in 22 years. Though inflation has tumbled from its peaks of last year, it still has further to go to reach the Fed’s 2% inflation target . Doing so is likely to require slower economic growth.
If the healthy economic expansion and hiring endure, Powell said Thursday, the central bank might have to further raise its benchmark rate. The Fed’s long series of rate hikes have raised the costs of auto and home loans, credit card borrowing and business loans, imposing financial burdens on many households and companies.
At the same time, Powell suggested that the Fed might not have to impose another hike, at least not soon, because of a spike in longer-term bond rates. The rise in long-term rates has contributed to a jump in the average cost of a 30-year mortgage to nearly 8%. Higher long-term rates, coming on top of the Fed’s own short-term rate hikes, could help slow growth and cool inflation, thereby easing pressure on the Fed to hike further.
“That’s exactly what we’re trying to achieve,” Powell said.
“At the margin,” he said, “it could” mean the Fed won’t have to further raise rates.
Yet Powell also said there was no evidence that interest rates are too high right now, a signal that he thinks the Fed could raise them further without causing a recession in the process.
Asked Thursday about the economy’s resilience despite the rate hikes, Powell suggested that interest rates simply “haven’t been high enough for long enough.” Many economists expect that the Fed, even if it doesn’t raise its rate again, will keep them high for an extended period.
Last month, Fed officials predicted that they would impose one more rate hike before the end of the year. Economists and Wall Street traders expect the central bank to leave rates unchanged when it next meets in about two weeks.
Several recent economic reports have suggested that the economy is still growing robustly and that inflation could remain persistently elevated.
In September, hiring was much greater than had been expected, with the unemployment rate staying near a half-century low. Strong hiring typically empowers workers to demand higher wages, which, in turn, can worsen inflation if their employers pass on the higher labor costs by raising their prices.
Yet so far, Powell noted that wage growth has slowed. Other measures of the job market are also cooling, a trend that could keep inflation contained. Indeed, even with solid economic growth, inflation has largely decelerated: The Fed’s preferred measure of price changes eased to 3.5% in September compared with 12 months earlier, down sharply from a year-over-year peak of 7% in June 2022.
On Wednesday, Christopher Waller, an influential member of the Fed’s governing board, suggested that the slowdown in inflation even as the economy has remained healthy is “great news” but also “a little too good to be true.” He noted that growth could either slow, helping cool inflation, or remain strong, fueling higher inflation and requiring further rate hikes by the Fed to contain it.
“It is too soon to tell,” Waller said. “I believe we can wait, watch and see how the economy evolves before making definitive moves.”
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.
