Federal Reserve officials sharply upgraded their growth forecasts for the world’s largest economy but signalled that they expected to keep interest rates close to zero until at least 2024.
The median estimate from Fed officials now predicts that the US will grow by 6.5 per cent this year, compared with 4.2 per cent in its December forecast.
The rosier projections from the Fed came at the end of a two-day meeting of the Federal Open Market Committee on Wednesday. It was held against a backdrop of growing optimism about the US economy in the wake of Joe Biden’s $1.9tn fiscal stimulus and the country’s swift vaccination rollout.
Core inflation is expected to rise to 2.2 per cent — above the central bank’s 2 per cent target — compared with a smaller rise to 1.8 per cent predicted in December. The unemployment rate is now forecast to fall to 4.5 per cent by the end of the year instead of 5 per cent.
“Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak,” the FOMC said.
The FOMC made no changes to its ultra-loose monetary policy on Wednesday, pledging to maintain rock-bottom interest rates until the economy reached full employment, with inflation hitting 2 per cent and on track to exceed that target.
It also reiterated that it would continue to buy bonds at a rate of $120bn per month until “substantial further progress” was made towards its goals.
“The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook,” the FOMC said.
However, the sharp upgrade to the Fed’s summary of economic projections will test the central bank’s willingness to keep that stance in the years to come, and will intensify investor debate over when the central bank will start removing its support for the economy.
In December, the median of Fed officials’ estimates did not signal a rise in interest rates until at least 2024, an overall assessment that was unchanged on Wednesday despite the better outlook.
But four out of 18 Fed officials are now forecasting a rate increase in 2022, while seven are expecting one in 2023, signalling that US central bankers are turning more hawkish, according to Wednesday’s projections.
The Fed meeting comes at a delicate moment for the $21tn market for US government debt. Treasury yields, which rise as prices fall, have shot higher in recent weeks during bouts of frenetic trading as investors have revised their growth and inflation forecasts higher while also pulling forward the expected timing of the Fed’s first interest rate increase.
A sell-off on Wednesday, which had pushed 10-year yields to the highest level since last February, moderated slightly following the publication of the FOMC statement. The benchmark bond slipped to 1.65 per cent in afternoon trading in New York, having traded as high as 1.68 earlier in the session. The yield on 30-year bonds remained elevated around 2.44 per cent.
The S&P 500 was lower by 0.2 per cent, while the tech-heavy Nasdaq Composite dropped 0.5 per cent.
So far, the increase in yields is viewed by many Fed officials as a natural product of the improved outlook. While it has caught their attention, it has not been extreme enough to imperil the recovery, US central bank officials have suggested.
But Powell’s apparent willingness to tolerate the sharp rise in yields unless the moves were “disorderly” has rattled investors so far, adding fuel to the sell-off in US government debt.
“Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to US households and businesses,” the Fed added in its statement on Wednesday.
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.
