Economy

Powell May Soon Have to Detail Fed Vision of 'Inclusive' Economy – BNN

Published

3 years ago

September 20, 2021

(Bloomberg) — Federal Reserve officials say they want to use monetary policy to promote an inclusive economy, but so far they’ve shied away from describing what such an economy might look like.

For now, forecasters say they expect the U.S. central bank won’t begin raising interest rates until 2023, when national unemployment will have sunk to 3.6% and Black unemployment to 6.1% — roughly where those numbers were in early 2020, right before the pandemic struck. That’s according to the median estimates of the 16 economists who made predictions for both metrics in a recent Bloomberg survey.

But Fed Chair Jerome Powell, who is currently awaiting word from the White House about whether he will be reappointed when his term expires early next year, will get a chance to clarify whether those kinds of numbers would meet his definition of “inclusive” when he takes questions from reporters Wednesday following a two-day policy meeting.

“At some point, they can’t actually punt on the question of the Black unemployment rate,” said Claudia Sahm, a former Fed economist who participated in the survey. “The closer they get to liftoff, the more and more they are going to be forced to come up with something.”

It’s a key question for the year ahead as the U.S. central bank gears up to begin winding down the bond-buying program it launched at the onset of the pandemic in 2020, and then start raising its benchmark federal funds rate, which it slashed to nearly zero at same time. Two important developments since then have thrust Fed-watchers trying to predict where monetary policy is headed next into uncharted territory.

First, in August 2020 — following a 20-month internal review of its rate-setting strategy and a wave of protests against racial inequality across the country following the killing of George Floyd in Minneapolis — the Fed redefined the “maximum employment” mandate that Congress gave it in 1977 to be “broad-based and inclusive goal.”

In other words, a low national unemployment rate is no longer sufficient for declaring “mission accomplished” — Fed officials now want to see low-income communities benefiting from a strong economy too, something that only started happening at the tail end of the long economic expansion that preceded the pandemic.

The second development came a month later, in September 2020, when the central bank’s rate-setting Federal Open Market Committee announced that it expected to hold the funds rate near zero “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.”

That’s also different from the way the FOMC conducted policy in the past, when it sought to begin tightening monetary conditions prior to reaching maximum employment. The idea was to get out ahead of inflationary pressures that might be harder to subdue later on. In December 2015 — when it first began raising rates after cutting them to near zero during the 2008 financial crisis — the unemployment rate was 5% and Black unemployment was 8.5%.

But from 2015 to 2020, both overall and Black unemployment continued trending lower — Black unemployment fell as low as a record 5.2% in 2019 before bouncing back to 6% at the beginning of 2020 — and inflation remained tame. That experience led to regrets among Fed officials over misjudging the inflation threat and helped shape the outcome of last year’s policy review.

As of last month, national unemployment was 5.2% and Black unemployment was 8.8%. Both are expected to come down rapidly in the coming year as the economy recovers from the impact of the pandemic.

The big question now is whether monetary policy makers view the labor-market conditions that prevailed in early 2020 as representing the best possible outcome to hope for, all else equal, or if there is still room for improvement beyond that.

“Would they look back at February 2020 — with the Black unemployment rate at 6%, and the country at 3.5% — and say, that was an inclusive labor market? Because if that wasn’t an inclusive labor market, then that means, with monetary policy, when we get to February 2020 levels, we are not at ‘mission accomplished,’” Sahm said. “And if we are not at ‘mission accomplished,’ we should not be raising rates. But they haven’t told us.”

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

Published

2 days ago

November 8, 2024

Anne Joseph

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.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

Published

3 days ago

November 6, 2024

Anne Joseph

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.

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Economy

Trump’s victory sparks concerns over ripple effect on Canadian economy

Published

4 days ago

November 6, 2024

Anne Joseph

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.

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