Economy

If the economy is in ‘a good place,’ then why are interest rates so low? – MarketWatch

Published

5 years ago

March 3, 2020

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Federal Reserve Chair Jerome Powell explains the Fed’s half-point cut in interest rates.

Two hours after the Group of Seven finance ministers and central bank governors issued a joint statement declaring their readiness to take action to support the economy in the face of risks from the coronavirus, the Federal Reserve pulled the trigger, lowering its benchmark rate by 50 basis points.

It was the Fed’s first inter-meeting move since 2008.

“The fundamentals of the U.S. economy remain strong,” the Fed said in a 10 a.m. statement Tuesday announcing its decision that had unanimous support. “However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target rate for the federal funds rate by ½ percentage point, to 1-1 ¼ percent.”

All of a sudden, the reality of revisiting the zero lower bound, which the Fed now refers to as the effective lower bound, is no longer off in the distance. It could be right around the corner.

And this at a time when Fed officials are still saying that the economy and monetary policy are “in a good place” and the fundamentals are sound.

So what do policy makers do when the good place deteriorates into something mediocre and the fundamentals turn sour?

Forward guidance, which I like to call talk therapy? Large-scale asset purchases? Unfortunately, the Fed goes to war with the tools it has, not the tools it might want or wish to have.

The yield on the 10-year Treasury has plunged below 1%.

The market has already determined that interest rates will be lower for longer, which is why the yield on the 10-year Treasury note

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dipped below 1%. It doesn’t need the Fed’s guidance.

And stock markets

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were nonplussed by the Fed rate cut. After suffering their worst week last week since the financial crisis, stocks staged a powerful rally Monday before slumping again on Tuesday.

Fiscal-policy measures, which entail tax cuts and government spending, will be difficult to enact in this highly charged political environment. There is little evidence that the Republicans and Democrats can put partisan differences aside to work together.

Yes, there is bipartisan support for an emergency funding package to address the virus, but the federal government has to make up for lost time and a failure to provide even adequate testing kits.

Global financial institutions are pledging to work together to address the public health emergency and its economic consequences. But so far, monetary policy remains the only viable game in town, with central banks in Australia and Malaysia lowering interest rates as well on Tuesday. Other countries are certain to follow suit as the virus spreads and crisis deepens.

It has already been widely noted that monetary policy is not suited to address supply shocks. While emanating from the supply side — the virus has disrupted production worldwide — the dampening effect on business and consumer spending is within the Fed’s demand-side toolkit to address.

The Fed should get credit for acting pre-emptively on Tuesday. While the actual effect of the virus on economic growth can’t be assessed until it is reported in the aggregate statistics, international organizations and private forecasters had been slashing their growth forecasts for this year.

This week, the Organisation for Economic Co-operation and Development said that in a “downside risk scenario,” global gross domestic product could plunge to 1.5%, half its prior forecast from November.

Futures markets were once again way ahead of the Fed. In recent days, fed funds futures had priced in a series of rate cuts by year end — and two by the time of the March 17-18 meeting in two weeks.

Just last week, several Fed officials suggested they were in no hurry to adjust interest rates.

In a Feb. 25 speech to the National Association for Business Economics, Fed Vice Chair Richard Clarida, after saying that monetary policy was in a good place, mentioned the risks arising from the coronavirus and possible spillover effects from China to the rest of the global economy. But he said it was “still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook.”

It may have been too soon to speculate, but one week was clearly enough time to act!

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

2 days ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

6 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

7 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

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

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