(Reuters) – Several Federal Reserve policymakers say the U.S. central bank may need to ease monetary policy further to help nurse the economy through the coronavirus pandemic, minutes from their policy meeting last month showed on Wednesday.
FILE PHOTO: Flags fly over the Federal Reserve Headquarters on a windy day in Washington, U.S., May 26, 2017. REUTERS/Kevin Lamarque/File Photo
The Fed has already slashed interest rates to zero and bought trillions of dollars of bonds in response to the economic crisis spurred by virus, moves which have provided a boost to jobs and spending.
But, according to the readout of the July 28-29 policy meeting, members of the rate-setting Federal Open Market Committee saw the rebound in employment already slowing and additional “substantial improvement” hinging on a “broad and sustained” reopening of business activity.
Since last month, the number of new daily coronavirus infections has dropped, but is still averaging around 50,000, slowing business reopenings and, in some parts of the country, forcing schools to delay, reverse, or abandon plans to conduct in-person classes.
“Noting the increase in uncertainty about the economic outlook over the intermeeting period, several participants suggested that additional accommodation could be required to promote economic recovery and return inflation to the Committee’s 2% objective,” the minutes from the meeting said.
Policymakers last month discussed a range of possible approaches that could be appropriate “at some point,” including promising to keep interest rates low until certain economic benchmarks are met, or until a particular future date. The Fed used both options effectively during the last recession.
In what would be a novel approach for the Fed, policymakers also expressed little support for adopting caps or targets for Treasury yields. “Many participants judged that yield caps and targets were not warranted in the current environment but should remain an option” for the future, the minutes said.
The apparent swearing-off of pursuing a form of Treasury yield curve control did not go down well in the Treasury market. Yields on 30-year bonds and 10-year notes both rose notably.
“It seems the market is quite displeased with the discussion about yield curve control specifically,” said Tom Simons, a money market economist at Jefferies in New York.
MONETARY GAS PEDAL
The minutes also showed policymakers were nearing agreement on changes to the Fed’s policy framework, including its periodic “Statement of Longer-run Goals and Monetary Policy Strategy,” that could result in the U.S. central bank sticking with aggressive stimulus measures far longer than under its previous rubric.
Fed officials “agreed that … refining the statement could be helpful in increasing the transparency and accountability of monetary policy,” the minutes reported.
“Participants noted that the Statement on Longer-Run Goals and Monetary Policy Strategy serves as the foundation for the Committee’s policy actions and that it would be important to finalize all changes to the statement in the near future.”
Policymakers decided to revamp their policy approach in late 2018, when they worried that low inflation and low interest rates globally would mean they would need stronger tools than before to combat future recessions.
That was well before the pandemic ended a record-long period of growth and sent the world’s biggest economy into its sharpest downturn since the 1930s.
At the current juncture, with the U.S. unemployment rate at 10.2%, drastic cuts this month in government aid to households and businesses, and the virus continuing to spread, changing the Fed’s overarching framework may have little short-term impact on policy.
But it could signal the Fed’s readiness to keep its foot on the monetary gas pedal, and perhaps to take even more aggressive action ahead.
At the July policy meeting, all 17 policymakers supported leaving the target range for short-term rates between 0% and 0.25%, the minutes showed.
They also said the outlook for the economy hinged on the outlook for the virus, which has now killed more than 171,000 people in the United States, according to a Reuters tally.
And a number of participants said that since many provisions of the government’s massive late-March coronavirus rescue package are due to expire while the labor market is still weak, “additional fiscal aid would likely be important for supporting vulnerable families, and thus the economy more broadly, in the period ahead.”
Reporting by Jonnelle Marte, Ann Saphir and Howard Schneider; Additional reporting by Karen Brettell and Karen Pierog; Editing by Paul Simao
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
