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.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
The Canadian Press. All rights reserved.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
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