WASHINGTON (AP) — The spread of the COVID-19 delta variant is raising infections, leading some companies and governments to require vaccinations and raising concerns about the U.S. economic recovery.
But on Wednesday, Federal Reserve Chair Jerome Powell injected a note of reassurance, suggesting that the delta variant poses little threat to the economy, at least so far.
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“What we’ve seen is with successive waves of COVID over the past year and some months now,” Powell said at a news conference, “there has tended to be less in the way of economic implications from each wave. We will see whether that is the case with the delta variety, but it’s certainly not an unreasonable expectation.”
Powell spoke after the Fed ended its latest policy meeting in which it signaled, for the first time since the pandemic began to ease, that the economy is moving closer to the “substantial further progress” it wants to see before reducing the $120 billion in bonds it is buying each month. Those purchases are intended to lower rates on longer-term consumer and business loans to spur more borrowing and spending.
A reduction in the bond buying, which likely won’t start until the end of this year or early next year, would represent the start of a gradual pullback in the Fed’s support for the economy. Only when the bond purchases are completed is the Fed expected to begin considering raising its benchmark interest rate from zero, where it’s been since the pandemic erupted in March last year.
At his news conference, Powell acknowledged that the quickening spread of the highly contagious delta variant was threatening some areas of the nation where vaccinations are low, and he noted that “some forecasts are for them to rise quite significantly.” And he said that as the virus spreads, some consumers might pull back from the spending that has propelled the rapid rebound from the pandemic recession.
“Dining out, traveling, some schools might not reopen,” he said. “We may see economic effects from some of that or it might weigh on the return to the labor market. We don’t have a strong sense of how that will work out, so we’ll be monitoring it carefully.”
But Powell noted that last summer’s wave of infections had inflicted less damage to the economy that many analysts had forecast.
“We’ve kind of learned to live with it, a lot of industries have kind of improvised their way around it,” Powell added. “It seems like we’ve learned to handle this.”
The statement the Fed issued after its latest policy meeting said that ongoing vaccinations were helping to support the economy. But it dropped a sentence it had included after its previous meeting that said those vaccinations have reduced the spread of COVID-19.
The Fed’s latest policy statement comes as the economy is sustaining a strong recovery from the pandemic recession, with solid hiring and spending. That improvement, and a pickup in inflation, are key reasons why Powell and other Fed policymakers are believed to be moving closer toward pulling back their economic support. Consumer prices jumped 5.4% in June from a year ago, the biggest increase in 13 years. And a separate inflation gauge the Fed prefers has risen 3.9% in the past year.
Last month’s inflation surge marked a fourth straight month of unexpectedly large price increases, heightening fears that higher costs will erode the value of recent pay raises and undermine the economic recovery.
But Powell underscored his belief that recent inflation readings reflect price spikes in a narrow range of categories — such as used cars, airline tickets, hotel rooms, and car rentals — that have been distorted by temporary supply shortages resulting from the economy’s swift reopening.
The Fed’s most important inflation measure, Powell stressed, is what it calls “inflation expectations” — what businesses and consumers expect prices to do in the coming months and years. Expectations are important because they can be self-fulfilling: If companies expect their costs to rise, say, 3%, they are likely to raise their own prices by the same amount.
So far, current price increases haven’t raised inflation expectations much, Powell said.
“All the evidence is that it’s not happening,” he said.
While Powell fielded many questions about inflation, he also said that hiring needed to progress further before the Fed would be ready to dial down its support for the economy.
“Chairman Powell did a very good job of refocusing the discussion on the idea that the Fed is not looking to materially alter its policy until we get at least close to full employment,” said Russell Price, chief economist at Ameriprise Financial. “So that what he’s telling people there is that, that’s still their primary focus.”
Among Fed watchers and investors, there is some concern that the central bank will end up responding too late and too aggressively to high inflation by quickly jacking up interest rates and potentially causing another recession. Earlier this month, Republicans in Congress peppered Powell with questions about inflation.
But at his news conference, Powell said that if “we were to see inflation moving up to levels persistently that were above significantly, materially above our goal … we would use our tools to guide inflation back down” to the Fed’s target average inflation of 2% annually.
After a period of broad agreement during the pandemic crisis, the Fed’s policymakers appear divided over how soon to bein tapering its bond purchases. Several regional Fed bank presidents support tapering soon, including James Bullard of the St. Louis Fed, Patrick Harker of the Philadelphia Fed and Robert Kaplan of the Dallas Fed.
But Powell has said that the central bank wants to see “substantial further progress” toward its goals of maximum employment and price stability before it would consider reducing the bond purchases. To make up for years of inflation remaining below 2%, the Fed wants inflation to moderately exceed its 2% average inflation target and to show signs of remaining above that level for an unspecified time.
Powell has said the Fed will communicate its intention to taper “well in advance” of doing so. Many economists think that signal will occur in late August or September.
At their two-day meeting that ended Wednesday, Fed officials also discussed the mechanics of paring its bond purchases, including how fast the purchases would be wound down.
The Fed is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month in an effort to force down loan rates. Some on the Fed’s policymaking committee favor tapering the mortgage bond purchases soon, because home prices are soaring and ultra-low loan rates might be overheating demand for homes.
But Powell said he didn’t agree, suggesting that both Treasury and mortgage bond purchases tend to have similar effects on mortgage rates and other borrowing costs.
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AP Economics Writer Martin Crutsinger contributed to this report.
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.
