Policymakers at the United States Federal Reserve voted unanimously to leave interest rates unchanged at the end of their two-day meeting on Wednesday. The Fed will also continue to support the nation’s economic recovery by buying bonds at a clip of $120bn per month.
The monetary policy status quo came as no surprise, given that the Fed has long signalled it will keep its benchmark rate near zero until the US labour market is fully healed from last year’s COVID-19 blow. But Federal Reserve Chairman Jerome Powell said during his post-meeting virtual press conference that the US central bank would be prepared to reconsider current monetary policy should inflationary risks to the economic recovery emerge.
The Fed noted that strong policy support along with progress on coronavirus vaccinations is propelling improvements in the nation’s economy and jobs market. But Powell said that the current unemployment rate of 5.9 percent understates the true scale of joblessness because the number of Americans either working or actively looking for work remains low.
In May, the US had a record 9.2 million openings, leaving businesses scrambling to fill positions. But in June, some 9.5 million people were counted as unemployed by the US Department of Labor.
That mismatch has generated controversy, with some blaming generous federal unemployment benefits for disincentivising the jobless to return to work. Others point to a lack of caregiving options during the pandemic for keeping jobless workers on the sidelines, as well as fears of contracting COVID-19.
Powell expressed confidence that these issues won’t last. “These factors should wane in coming months, leading to strong gains in employment,” he said.
The Fed has a dual mandate to achieve maximum employment and price stability. The big question, therefore, is when officials will become concerned enough about rising inflation to start dialing back easy-money policies.
Powell has said repeatedly that the Fed is willing to accept inflation running above its 2 percent target rate for some time if that is what it takes to get the jobs market back to its pre-pandemic strength.
Inflation is currently running well above the Fed’s longer-term target rate.
The Producer Price Index (PPI), which measures prices that businesses fetch for the goods and services they sell, rose 7.3 percent in June over the same period a year ago. That was the steepest advance since annual numbers were first crunched back in November 2010. Consumer prices, meanwhile, rose 5.4 percent in June – the largest annual increase since August 2008.
A little bit of inflation is a good thing for an economy because it incentivises consumers to buy goods and services now, rather than be tight-fisted in expectation of prices dropping. But too much inflation is decidedly bad, especially if it triggers a vicious upward price spiral that prompts monetary policymakers to hike interest rates suddenly and potentially derail economic recovery.
Fed policymakers are of the view that the uptick in inflation is a consequence of supply bottlenecks forming as businesses reopen all at once, and will likely prove temporary.
There were no hawkish statements from the Fed that it’s getting ready to take the training wheels off of the economic recovery any time soon. But Powell gently telegraphed that policymakers are prepared to consider withdrawing some monetary support should conditions warrant it.
“If we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we’d be prepared to adjust the stance of policy,” he said.
When asked specifically if he is worried about higher wages fuelling inflation, Powell noted that most of the uptick in wages is happening in relatively low-paid jobs in the services industry. He also said there is no evidence of a wage-price spiral forming, in which unit labour costs go up and force companies to accept lower profit margins or raise prices.
“We don’t see that now,” said Powell. “This is something that was a feature of the high inflationary era of great inflation, but it’s not a feature now.”
During his press conference, Powell noted risks to the economic outlook, including slowing coronavirus vaccination rates and the Delta strain of COVID-19 spreading in some areas of the country.
“Continued progress on vaccinations would support a return to more normal economic conditions,” he said.
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.
