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Long-term rate hikes effects will be ‘more powerful’ than people think: Poloz

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OTTAWA — The full effects of interest rate hikes have yet to be felt — and will be “even more powerful” than many anticipate, said former Bank of Canada governor Stephen Poloz Thursday in a speech about ways Canada can chart a path toward economic growth during uncertain times.

Speaking at a conference hosted by Western University’s Ivey Business School in Ottawa on Thursday, the former governor warned today’s economy is more sensitive to interest rates than it was 10 years ago.

“Does anybody here think the sensitivity of the economy to interest rate movements is less today than it was five or 10 years ago?” Poloz asked. “I think it’s more sensitive today than it was before.”

Poloz estimates annual inflation will fall to about four per cent on its own as external factors, such as higher commodity prices, ease. Statistics Canada’s most recent annual inflation rate sat at 6.9 per cent in October.

He said policy action will need to do the rest of the work to get inflation back down to the central bank’s two per cent target.

“I think that the actions that are being taken to get us there will turn out to be even more powerful than a lot of people think,” Poloz said, citing higher debt loads in the Canadian economy as a vulnerability.

The former governor is the chair of the Lawrence National Centre for Policy and Management, an independent think tank hosted at Ivey.

Poloz began his remarks by sharing his thoughts on the drivers of high inflation and where prices are headed. His speech also offered a set of recommendations on how Canada can improve long-term economic growth during volatile times.

He said the think tank will offer a summary of the recommendations to Finance Minister Chrystia Freeland next week.

Poloz finished his seven-year term as Bank of Canada governor a few months into the COVID-19 pandemic. Since then, the central bank has dramatically shifted gears from the extraordinary stimulus measures of 2020 to rapid monetary policy tightening.

The Bank of Canada began raising interest rates in March to clamp down on rising inflation. Since then, the central bank raised its key interest rate six consecutive times, embarking on one of the fastest monetary policy tightening cycles in its history.

Its key rate currently stands at 3.75 per cent and is expected to rise again next month.

The aggressive rate hikes are expected to slow the Canadian economy significantly. And though many economists are cautiously optimistic that the slowdown won’t be severe or long-lasting, labour groups in particular have been concerned about the consequences of a potential recession.

Is the Bank of Canada overshooting with its rate hikes? “It’s impossible to say,” Poloz said in an interview.

Economists estimate interest rate hikes take one to two years to take full effect in the economy. That lag makes it difficult to judge whether rate hikes are too much or too little, the former governor said.

Poloz said trying to slow inflation with interest rate hikes is like trying to stop a car with bad brakes.

“It takes a long time to actually slow down and so you stand on the brake really hard. Well, then you’re going to cause an accident too,” he said.

Though high inflation has persisted longer than the Bank of Canada’s initial projections, Poloz defended the use of the word “transitory” to describe inflation pressures, noting in his speech that international contributors to inflation such as supply chain delays are already dissipating.

“In other words, the part of inflation that is externally driven, really is transitory. It’s OK to use the word transitory,” he said.

However, the former central bank governor says it takes time for that development to be reflected in the annual inflation rate.

Bank of Canada governor Tiff Macklem notably called inflation “transitory” — meaning temporary — when it first started rising.

Since then, he’s backed away from that characterization and has emphasized that the domestic economy is overheated and inflation won’t return to target without action from the central bank.

While high inflation has come to the forefront of economic policy discussions, many economists are concerned about what Canada is — or isn’t — doing to promote long-term growth.

During his speech, Poloz made the case for government policies that promote stability and clarity for businesses. The less uncertainty there is about trade policy and projects, for example, the more businesses will invest in their operations and improve their productivity, he said.

“Clarity is the obvious antidote to uncertainty.”

This report by The Canadian Press was first published Nov. 24, 2022.

 

Nojoud Al Mallees, The Canadian Press

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More evacuation orders in B.C. as heat wave aids lightning-triggered wildfires

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Several lightning-triggered wildfires have forced authorities in British Columbia to issue evacuation orders as the province’s southern and eastern regions swelter in a heat wave.

The BC Wildfire Service says the Island Pond fire about 17 kilometres south of Canal Flats, B.C., in the East Kootenay, was discovered Saturday and grew to 1.2 square kilometres overnight.

The Regional District of East Kootenay has declared a state of local emergency and issued an evacuation order for two addresses as a result, and has also warned another 65 properties to be prepared to leave on short notice.

Meanwhile, the Cariboo Regional District ordered residents on 29 parcels of land in the Kuyakuz Lake area covering 923 square kilometres to evacuate immediately, with five out-of-control wildfires burning nearby — four of which were confirmed to be lightning-caused.

The new evacuation orders come as the Shetland Creek fire about eight kilometres north of Spences Bridge, B.C., is holding at about 150 square kilometres in size.

The BC Wildfire Service dashboard says about 87 per cent of the more than 300 blazes burning in the province have been caused by lightning.

All evacuation orders and alerts linked to the Shetland Creek blaze in B.C.’s Thompson-Nicola region remain in place for communities such as Ashcroft, Cache Creek, Spences Bridge and the Ashcroft First Nation.

In the Central Kootenay, the community of Silverton, B.C., is on alert while 107 properties south of the village are under an evacuation order due to the nearby Aylwin Creek wildfire.

Aylwin Creek and nearby Komonko Creek remain at a combined size of 6.5 square kilometres, and Highway 6 south of Silverton remains closed due to wildfires burning nearby.

Environment Canada says the latest heat wave broke or matched the daily high-temperature records in 14 B.C. communities on Saturday, with Lytton reaching a high of 41.2 degrees — breaking a record of 40.6 degrees set in 1946.

Temperature records also fell in the B.C. communities of Cranbrook, Merritt, Princeton, Trail and Vernon, with all five communities reaching at least 36 degrees.

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

The Canadian Press. All rights reserved.



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Why Ontario Premier Doug Ford is at war with the LCBO – BBC.com

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Why Ontario Premier Doug Ford is at war with the LCBO  BBC.com

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U.S. President Joe Biden steps aside as Democratic candidate, ending re-election bid

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WASHINGTON – U.S. President Joe Biden is removing his name as the Democratic candidate in the November election following weeks of mounting pressure over the 81-year-old’s mental acuity and ability to win the faceoff with Republican rival Donald Trump.

Biden says it has been his greatest honour to serve but he believes it is in the best interest of his party to stand down and focus solely on fulfilling his duties as president for the rest of his term.

Growing numbers of Democrats were urging Biden to drop out following a disastrous debate performance against Trump and multiple missteps on the world stage during the recent NATO leaders’ summit in Washington.

Biden told supporters Friday he was ready to get back on the road this week after recovering from COVID-19, which he contracted during a critical time for his campaign.

Biden criticized Trump’s acceptance speech at last week’s Republican National Convention, saying it presented a dark vision for the future, and indicated he would forge ahead with his own campaign.

But he issued a social media post on Sunday afternoon saying he would not be running, adding he will speak to the nation and provide more detail later this week.

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

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