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Fed to weigh further options for aiding US economy in peril – Advisor.ca

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The central bank’s policy meeting coincides with a record-shattering resurgence of the coronavirus, which has caused an increase in business restrictions and made more Americans reluctant to shop, travel and dine out. Some analysts say the economy could shrink in early 2021 before recovering as vaccines combat the virus.

Economists are divided on whether the Fed will announce any new actions this week. One option the policymakers could take would be to announce a shift in the Fed’s bond purchases. The Fed has been buying $80 billion in Treasury bonds and $40 billion in mortgage bonds each month in an effort to keep borrowing rates down.

The idea of a shift would be to buy more longer-term bonds and fewer shorter-term securities, to hold down longer-term interest rates. The Fed has already cut its benchmark short-term rate to a record low near zero.

Yet the Fed’s tools take time to support the economy, which adds a layer of complexity given the short-term gloom and longer-term optimism.

“Near-term downside risk may not be enough of a reason” to provide more stimulus “if the outlook for the economy in three to six months remains strong,” Lewis Alexander, U.S. chief economist at Nomura Securities, said in a research note.

Another complicating factor is that even as negotiations continue, Congress has yet to agree on another round of urgently needed financial aid for millions of unemployed Americans, thousands of struggling businesses and cash-short states and cities.

Many Fed policymakers, including Chair Jerome Powell, have repeatedly urged Congress to provide more support. Most proposals on Capitol Hill include extending unemployment benefit programs that are scheduled to expire in about two weeks. At that point, roughly 9 million jobless people will lose all their unemployment aid, state or federal.

“They’re all looking to fiscal stimulus,” Tim Duy, an economics professor at the University of Oregon and author of the Fed Watch blog, referring to potential rescue aid from Congress.

Recent data is pointing to an economy that is getting worse. More Americans are seeking unemployment benefits, a sign that layoffs are likely rising, and overall hiring slowed in November to its slowest pace since April. Credit and debit card data suggests that holiday spending is weaker than it was last year.

Still, Fed officials may not yet be ready to take new steps, perhaps believing they have already provided nearly all the help they can for the economy through ultra-low rates.

At their meeting in November, Fed policymakers discussed the idea of buying more longer-term bonds, among other options, according to minutes published three weeks later. Doing so could further reduce the yield on 10-year Treasurys, which influence other borrowing costs, such as mortgage and credit card rates.

By contrast, the purchase of, say, two-year Treasurys has less effect on the most common loan rates, though it can help the Treasury market function more smoothly, which was the original goal of the Fed’s bond-buying program this year.

While Fed officials worry that the pandemic will severely harm the economy this winter, not all are sold on more stimulus.

“We expect very strong growth next year,” Robert Kaplan, president of the Federal Reserve Bank of Dallas, told CNBC this month. “But I think the next three to six months are going to be challenging. And it appears to us that growth is decelerating, and if this resurgence keeps heading the wrong way, which it is, that slowing and deceleration could get worse.”

But Kaplan, a voting member of the Fed’s policymaking committee, said, “I would not want” to alter the bond-buying program “at this point.”

He added: “I don’t know that increasing the size or extending maturities of our bond purchases would help address this situation that I’m concerned about over the next three to six months.”

“As always,” though, Kaplan said, “I will go into the meeting with an open mind.”

Other Fed bank presidents, including Charles Evans of the Chicago Fed and Mary Daly of the San Francisco Fed, have also suggested in recent weeks that a change to the bond-buying program at this point might not be necessary. Neither Evans nor Daly has a vote on the Fed’s policy committee, but they will participate in this week’s meeting.

Even if it doesn’t announce a policy shift this week, the Fed will likely provide additional guidance about its bond purchases. After its November meeting, it said it would keep buying bonds “over coming months.” The minutes from that meeting said that most policymakers wanted to provide more specific guidance “fairly soon.” Analysts have interpreted that to likely mean this week’s meeting.

The Fed isn’t expected to tie its bond purchases to any specific level of inflation or unemployment but instead suggest a more general goal. Alexander said it could be as simple as stating that bond purchases will continue “until the recovery is well-advanced.”

The minutes of the November meeting also showed that the policymakers expect to start slowing their bond purchases before they begin raising interest rates. And economists foresee no Fed rate hikes until as late as 2024 or 2025. On Wednesday, the Fed will issue forecasts through 2023 that are expected to show no rate hikes at all.

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

The Canadian Press. All rights reserved.

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Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

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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)

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Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

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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.

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