WASHINGTON — Abrupt changes to the federal funds rate could stress the economy and financial markets, with steady and well-communicated increases preferable given the uncertainty about how hard and fast rate hikes will hit business and household spending, Kansas City Fed president Esther George said on Monday.
With inflation running at a 40-year high, “the case for continuing to remove policy accommodation is clear-cut,” George said in remarks prepared for delivery to a labor-management conference in Missouri.
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But “the speed at which interest rates should rise…is an open question,” she said in remarks made as several of her colleagues have already endorsed a second consecutive three-quarter point increase at the upcoming July Fed meeting. George dissented against an increase of that size in June, preferring the half-point increase the public was expecting until the weekend before the meeting.
“The pace at which this path unfolds will need to be carefully balanced against the state of the economy and financial markets,” George said in what amounts to the bluntest warning yet from a policymaker that the central bank may be at risk of overdoing it.
The Fed since March has been raising interest rates to try to curb inflation, and in the space of three meetings has moved in quarter point then half point then three-quarter point increments. This has ignited a rapid shift in financial conditions seen in higher home mortgage rates and a reordering of bond and stock financial markets.
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“This is already a historically swift pace of rate increases for households and businesses to adapt to, and more abrupt changes in interest rates could create strains, either in the economy or financial markets,” said George.
“Communicating the path for interest rates is likely far more consequential than the speed with which we get there,” George said, hinting she may be inclined against another three-quarter point hike when the Fed meets in July.
Financial markets currently expect that larger increase. But many investors and economists also have been flagging a heightened risk the central bank may raise interest rates so high it triggers a recession.
George said she found it “remarkable” a recession debate had emerged “just four months” after the Fed started raising rates, with some analysts even forecasting the Fed will need to begin cutting the federal funds rate next year, presumably because of an economic slowdown.
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The Fed is at a sensitive point in its inflation fight. Headline data have given no clear evidence the battle has been won. Data to be released Wednesday is expected to show consumer prices rose at an 8.8% annual rate, the fastest since late 1981, and recent job market surveys show continued strong hiring and a historically outsized number of job openings.
In a survey released Monday the New York Fed said that consumer expectations for inflation over the next year hit a series high 6.8%.
Yet over a 3-year period household inflation expectations fell in the latest survey from 3.9% to 3.6% – still well above the Fed’s 2% target, but moving in the right direction.
Recent economic data has also shown consumption spending falling on an inflation-adjusted basis, and the outsized wage gains of the pandemic era beginning to moderate.
Overall economic growth may end up being negative for the April through June period, just as it was for the first three months of the year, a possibility that may add to recession warnings. (Reporting by Howard Schneider Editing by Chizu Nomiyama)
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.
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.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
