Economy

US interest-rate decision the world is watching

Published

1 year ago

March 22, 2023

Harry Miller

By Natalie Sherman

Business reporter, New York

The global economy is facing a slew of problems – and all eyes are looking in one direction: America.

Two banking failures in the US this month have raised fears about the health of the financial system.

The collapses follow a sharp rise in global borrowing costs, led by the US, which has shocked the world economy and raised worries about a painful downturn known as a recession.

At the centre of the crisis is the US central bank.

Since last year, authorities at the Federal Reserve have been leading the charge to raise interest rates, as they wrestle to rein in price increases driving up the cost of living.

With risks to the economy rising, can that campaign continue?

Just two weeks ago, Chairman Jerome Powell warned the bank might need to raise interest rates further and faster than expected, citing concerns that progress on stabilising prices was stalling.

The rate at which prices rise was 6% in the 12 months to February – far higher than the 2% rate considered healthy.

But the recent banking turmoil has many investors betting the Fed will be especially keen to avoid startling financial markets with a big move.

Many analysts expect officials to raise rates by 0.25 percentage points – or perhaps hold off on an increase entirely.

Whatever the decision, Mr Powell is squarely in the hot seat – with little chance of satisfying his many critics.

“This is probably the toughest decision the Fed has had to make in a while,” says Ryan Sweet, chief economist at Oxford Economics, who is expecting a 0.25 percentage point increase.

He says Mr Powell will “have to play the two-handed economist perfectly”, convincing investors that the central bank can still raise rates to fight inflation on the one hand, while using other tools to combat stress in the financial system.

“The biggest challenge is going to be communication and the Fed doesn’t have a really good track record.”

Mr Powell, a lawyer who was appointed to lead the Fed by former President Donald Trump, already had work to do to restore credibility, after he infamously described the price rises that started to hit America in 2021 as “transitory”.

The bank failures have added to the scrutiny, putting into focus costs from the rapid rate rise campaign, while raising questions about whether the Federal Reserve had been too lax in its oversight.

Senator Elizabeth Warren, a progressive Democrat who has long faulted Mr Powell’s response to inflation, has accused him of presiding over an “astonishing list of failures”, including faulty supervision.

She said this week she did not think he should remain in his post.

And though the reasoning is different, criticism of Mr Powell has also grown louder on Wall Street and in Silicon Valley.

“The Fed should have reacted to inflation six months earlier, and then raise rates more gradually. Instead they slammed on the brakes and now we have a car crash,” venture capitalist David Sacks wrote on Twitter in the wake of the bank failures.

With outcry widening, the White House this week issued a statement affirming US President Joe Biden’s “confidence” in Mr Powell.

Mr Sweet said such an unusual step is a sign in part of a more toxic turn in politics.

“I think on both sides, they’re much more quick to criticise and point the finger,” Mr Sweet said.

Over the past year, the Fed has raised its key rate – what it charges banks to borrow – from near zero to more than 4.5% – the highest level since 2007.

But strong hiring has helped the economy hold up better than many expected, despite a sharp slowdown in the housing market and struggles in the tech sector, where low borrowing costs had helped fuel growth.

Still, the recent banking panic is likely to push the US economy into recession sooner than expected – and there is little doubt that pressure on Mr Powell has increased, Mr Sweet said.

“Anytime you get any stress in the banking system all eyes turn to the Federal Reserve.”

Source link

Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

Published

2 days ago

September 10, 2024

Anne Joseph

VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

Source link

Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

Published

3 days ago

September 10, 2024

Anne Joseph

NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

Source link

Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

Published

3 days ago

September 10, 2024

Anne Joseph

HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

Source link