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The Economy Doesn’t Need The Fed’s Easy Monetary Policy To Keep Booming, BofA Says – Forbes

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Topline

Concerns are rising that the Federal Reserve’s eventual withdrawal of its unprecedented support from the U.S. economy will dampen the major boom experts are expecting at the end of this year as the economy reopens, but Bank of America says you shouldn’t worry just yet. Here’s why.

Key Facts

First, there’s a lot more stimulus spending ahead as the Biden Administration prepares to unveil a multitrillion-dollar infrastructure plan, the experts say, not the mention the fact that much of the funding from the $1.9 trillion American Rescue Plan and preceding stimulus bills is continuing to work its way through the economy.

Second, the Fed has repeatedly signaled that it will not raise interest rates anytime soon—and when it does, it will do so slowly and with plenty of advance warning.

Many investors fear that the inflationary pressures likely to come along with the recovery boom could force the Fed to withdraw support more quickly and rattle markets, adding even more instability to an already precarious situation.

Bank of America’s experts don’t expect the Fed to touch interest rates until the end of 2023, even if inflation rises above its 2% target, and they expect the Fed to wait until next year before easing off of its pandemic bond-buying program.

Last, Bank of America argues that after a downturn, a recovery tends to build enough momentum to be self-sustaining even after fiscal and monetary support dries up.

Crucial Quote

“While we welcome these positive developments, no one should be complacent,” Federal Reserve chair Jerome Powell said last week, referring to the fact that the economic recovery is progressing much faster than many expected, especially when it comes to household spending, manufacturing and the housing market. “At the Fed, we will continue to provide the economy the support it needs for as long as it takes.

Big Number

$1.6 trillion. That’s how much extra money households saved last year thanks to business closures, restrictions and lockdowns. Experts expect some—but not all—of those excess savings to help fuel a dramatic uptick in consumer spending later this year.

Tangent

In another sign of confidence in the recovery, the Federal Reserve announced Thursday that it will end restrictions on dividend payments and share repurchases for most banks on June 30. The restrictions were put in place last year to ensure that banks had enough capital on hand to see them through the coronavirus crisis.

Key Background

The U.S. economy contracted 3.5% in 2020 as the coronavirus pandemic forced business closures and lockdowns and left millions unemployed, but a robust vaccine program and the recent passage of President Biden’s $1.9 trillion American Rescue Plan led the Organization for Economic Cooperation and Development to predict 6.5% GDP growth in 2021. 

Further Reading

$1,400 Stimulus Checks Are Already Working As Credit, Debit Spending Surges 45%, BofA Says (Forbes)

Covid-19 Recession: 10 Important Numbers That Sum Up America’s Economic Crisis One Year Later (Forbes)

Powell And Yellen Praise Aggressive Stimulus Spending, Acknowledge Incomplete Economic Recovery In Congressional Testimony (Forbes)

Federal Reserve Looking Ahead To Higher Inflation As Economy Rebounds, But It Won’t Raise Rates Yet (Forbes)

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Economy

CANADA STOCKS – TSX ends flat at 19,228.03

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* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03

* Leading the index were Corus Entertainment Inc <CJRb.TO​>, up 7.0%, Methanex Corp​, up 6.4%, and Canaccord Genuity Group Inc​, higher by 5.5%.

* Lagging shares were Denison Mines Corp​​, down 7.0%, Trillium Therapeutics Inc​, down 7.0%, and Nexgen Energy Ltd​, lower by 5.7%.

* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.

* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.

* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.

* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude  fell 0.24%, or $0.15, to $63.05 [O/R]

* The TSX is up 10.3% for the year.

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Canadian dollar outshines G10 peers, boosted by jobs surge

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.

Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.

“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”

Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.

The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.

The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.

Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.

The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.

Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.

 

(Reporting by Fergal Smith; Editing by Andrea Ricci)

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Economy

Canadian dollar rebounds from one-week low ahead of jobs data

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Thursday, recovering from a one-week low the day before, as the level of oil prices bolstered the medium-term outlook for the currency and ahead of domestic jobs data on Friday.

The Canadian dollar was trading 0.4% higher at 1.2560 to the greenback, or 79.62 U.S. cents. On Wednesday, it touched its weakest intraday level since March 31 at 1.2634.

“We have seen partial retracement from the decline over the last couple of days,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

“With oil prices where they are – let’s call WCS still at roughly $49 a barrel – I still think CAD has room to strengthen over the medium term and even over a one-week horizon.”

Western Canadian Select (WCS), the heavy blend of oil that Canada produces, trades at a discount to the U.S. benchmark. U.S. crude futures settled 0.3% lower at $59.60 a barrel, but were up nearly 80% since last November.

The S&P 500 closed at a record high as Treasury yields fell following softer-than-anticipated labor market data, while the U.S. dollar fell to a two-week low against a basket of major currencies.

Canada‘s employment report for March, due on Friday, could offer clues on the Bank of Canada‘s policy outlook. The central bank has become more upbeat about prospects for economic growth, while some strategists expect it to cut bond purchases at its next interest rate announcement on April 21.

On a more cautious note for the economy, Ontario, Canada‘s most populous province, initiated a four-week stay-at-home order as it battles a third wave of the COVID-19 pandemic.

Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year fell 3.3 basis points to 1.469%.

(Reporting by Fergal Smith;Editing by Alison Williams and Jonathan Oatis)

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