Economy

Fed sharply upgrades US growth forecast to 6.5% for 2021 – Financial Times

Published

4 years ago

March 17, 2021

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.

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Economy

Liberals announce expansion to mortgage eligibility, draft rights for renters, buyers

Published

6 hours ago

September 16, 2024

Anne Joseph

OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.

She says the changes will come into force in December and better reflect the housing market.

The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.

The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.

On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.

Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.

Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.

The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.

The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.

This report by The Canadian Press was first published Sept. 16, 2024.

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Economy

Statistics Canada says manufacturing sales up 1.4% in July at $71B

Published

7 hours ago

September 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.

The increase followed a 1.7 per cent decrease in June.

The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.

Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.

Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.

In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.

This report by The Canadian Press was first published Sept. 16, 2024.

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Economy

S&P/TSX gains almost 100 points, U.S. markets also higher ahead of rate decision

Published

3 days ago

September 13, 2024

Anne Joseph

TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.

“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.

Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.

But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.

Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.

“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.

“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.

A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.

It would also be “counter to what they’ve signaled,” he said.

More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.

“That’s going to be more important than the size of the cut itself,” he said.

In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.

“Here, the labour situation is worse than what we see in the United States,” he said.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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