The Federal Reserve looks likely to keep short-term interest rates near zero for five years or possibly more after it adopts a new strategy for carrying out monetary policy.
The new approach, which could be unveiled as soon as next month, is likely to result in policy makers taking a more relaxed view toward inflation, even to the point of welcoming a modest, temporary rise above their two per cent target to make up for past shortfalls.
Fed Chairman Jerome Powell is slated to provide an update on the Fed’s 1-1/2-year-old framework review of its policies and practices when he speaks on Thursday to the central bank’s Jackson Hole conference, being held virtually this year because of the coronavirus pandemic.
“I wouldn’t be surprised if interest rates are still zero five years from now,” said Jason Furman, a former chief White House economist and now Harvard University professor.
That would be good news for some investors. Thanks in no small part to the Fed’s ultra-accommodative monetary policy, the S&P 500 stock-market index is trading at a record high even though the U.S. economy has yet to recover much of the ground it lost in the deepest downturn since the Great Depression as the pandemic took hold.
FOMC Forecasts
At their June meeting, all 17 Fed policy makers projected that the federal funds rate they target would remain near zero this year and next. And all but two saw rates staying at that level in 2022. Officials will provide updated quarterly forecasts at their meeting next month, including for the first time projections for 2023.
“We’re not even thinking about thinking about raising rates,” Powell told reporters following the June meeting, in a memorable maxim that he’s repeated since.
Eurodollar futures aren’t currently pricing any premium for Fed rate hikes until early 2023, with a full quarter-point increase priced in toward the end of 2023. Some traders, though, have viewed this as slightly too dovish, with demand emerging for hedges against a steeper path than is currently priced in for 2023 and 2024. Some see ultra-easy monetary policy eventually spurring inflation.
Lower for Longer
The Fed held rates near zero for seven years during and after the financial crisis before raising them in December 2015. Former Fed Vice Chairman Alan Blinder doubts it will be that long this time, though he adds that he would have said the same thing when the Fed first cut rates effectively to zero in December 2008.
“It’s perfectly conceivable it could take seven years” before rates are increased, given how difficult it’s been for the Fed to generate faster inflation, said former U.S. central bank official Roberto Perli, who is now a partner at Cornerstone Macro LLC.
In the last decade, it took more than three years for inflation-adjusted gross domestic product to rise back to the level that prevailed before the 2007-09 financial crisis. The recovery is expected to be faster this time: Deutsche Bank global head of economic research Peter Hooper sees GDP attaining its first-quarter level in the first half of 2022, though much will depend on the development and dissemination of a vaccine.
Framework Review
But staying the Fed’s hand will be a change in how it reacts to developments in the economy as a result of the framework review.
When it raised interest rates in December 2015, core inflation was clocked at 1.5% — it’s since been revised lower — while unemployment stood at five per cent.
Economists said it’s hard to see the Fed increasing rates under similar conditions now.
The Fed first pronounced a 2 per cent target for inflation in 2012, and officials took that to mean they would always shoot for 2 per cent, no matter how much or for how long they missed. Bygones, they said, would be bygones. The trouble was that inflation has consistently run below their objective since then.
Under the new regime, the Fed is expected to seek an inflation rate that roughly averages 2 per cent over time. So a modest rise in inflation above target would be welcomed, not feared, after an extended period where it undershot.
The Fed is also expected to codify a change in its approach toward achieving full employment. In the past, officials shied away from pushing joblessness below what was considered its long-run natural rate out of concern that would lead to too rapid inflation.
Labour Market
Now, the emphasis is on the benefits of a strong labor market for the economy and society. “They’re not going to act to cool off the labor market unless it’s generating unwanted inflation,” said Nomura Chief U.S. Economist Lewis Alexander. “That’s essentially walking away from the concept that there is a natural rate that it is irresponsible to push beyond.”
Powell has said he’d like to see the jobs market return to its pre-COVID-19 state, when unemployment stood at a half-century low of 3.5 per cent. It’s now 10.2 per cent
Blinder said it will take years to do that. “I hope it won’t be decades,” the Princeton University professor added.
The bottom line for policy: a prolonged period of rock-bottom interest rates.
“I’d be very surprised if it’s less than three years,” said David Wilcox, a former Fed official now with the Peterson Institute for International Economics. “I could see it being as much as six or seven years if the damage from the crisis proves to be much more long lasting.”
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
