The United States Federal Reserve signalled fresh concerns about inflation as it reaffirmed it needs more evidence that price gains are cooling before cutting interest rates from a two-decade high.
Officials unanimously decided to leave the target range for the benchmark federal funds rate at 5.25 per cent to 5.5 per cent — where it’s been since July — following a slew of data that pointed to lingering price pressures in the United States economy.
“So far this year, the data have not given us that greater confidence in particular” that rate cuts are appropriate, chair Jerome Powell said at a press conference following the two-day meeting in Washington. “Readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected.”
Powell said it’s unlikely that the Fed’s next move would be to raise interest rates, saying officials would need to see persuasive evidence that policy is not tight enough to bring inflation back toward the central bank’s two per cent target. “We don’t see evidence supporting that conclusion,” he added.
Still, the Fed chief stopped short of signalling rate cuts were likely this year or that rates were at a peak, which he has said previously.
In a statement Wednesday at the conclusion of the meeting, the Federal Open Market Committee said “there has been a lack of further progress toward the committee’s two per cent inflation objective” in recent months. That represented an addition to phrasing introduced in December saying that inflation “has eased over the past year but remains elevated.”
In another change, the Fed said that risks to achieving the Fed’s employment and inflation goals “have moved toward better balance over the past year,” referring to the progress in the past tense. The previous statement said the goals were “moving into better balance.”
Policymakers stopped short of signalling they would consider raising rates again.
Stocks and Treasuries rose after Powell said it’s unlikely the Fed’s next rate move would be a hike.
Officials also outlined plans to slow the pace at which the central bank is shrinking its asset portfolio. The Fed will cut the cap on runoff for Treasuries to US$25 billion a month from US$60 billion beginning in June, in a bid to reduce the risk of financial-market turbulence that struck during the previous round of balance-sheet trimming in 2019.
The cap for mortgage-backed securities (MBS) remained unchanged at US$35 billion, though the Fed will in June reinvest any principal payments above the cap into Treasuries instead of MBS.
On the balance sheet, policymakers generally agreed at the Fed’s previous meeting in March that it would be appropriate to take a cautious approach toward further runoff — a process known as quantitative tightening, or QT — given market turmoil in 2019, minutes from the meeting showed.
Officials have stressed that the decision to slow QT is independent of rate cuts and their timing.
While price pressures cooled rapidly in the final months of 2023, progress toward the central bank’s two per cent inflation goal has stalled in 2024. Meantime, the economy continues to expand on the back of a strong labour market and steady consumption and investment.
Wednesday’s statement reiterated that job gains have “remained strong” with a low unemployment rate, while the economy has expanded at a “solid pace.”
Data out Tuesday showed employment costs climbed in the first quarter at the fastest pace in a year, topping expectations and pointing to robust wage growth.
Three straight months of disappointing inflation figures have driven a major repricing of interest-rate expectations, with futures markets now showing just one cut this year.
That’s well below the three narrowly projected by Fed officials in March and the roughly six anticipated by markets at the start of 2024. Concerns that the central bank may not cut at all this year have also grown amid questions of just how much Fed policy is restraining the economy.
Against a backdrop of a resilient economy, the pickup in prices has also led to a change in tune among Fed officials. The rate cuts signalled by Powell in December relied heavily on a continued deceleration in inflation — something that hasn’t happened.
As a result, Powell said in April that it would likely take “longer than expected” to gain the level of confidence on inflation’s trajectory needed to lower interest rates. He added the central bank can keep rates steady for “as long as needed.”
The Fed’s preferred price gauge was up 2.7 per cent in March from a year earlier, an acceleration from the prior period. Excluding food and energy, it advanced 2.8 per cent.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
The Canadian Press. All rights reserved.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
The Canadian Press. All rights reserved.
HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.
Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.
The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.
Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”
Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.
Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.
This report by The Canadian Press was first published Sept. 10, 2024.
The Canadian Press. All rights reserved.
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