The Federal Reserve foresees the economy accelerating quickly this year but still expects to keep its benchmark interest rate pinned near zero through 2023, despite concerns in financial markets about potential higher inflation.
The Fed also said Wednesday that it foresees the economy growing at a 6.5 per cent pace this year, up from a previous projection in December of 4.2 per cent. It also expects inflation to reach 2.4 per cent in 2021, above its target of two per cent, but expects inflation to fall back to around two per cent in 2022.
The central bank also said it would continue to buy $120 billion in bonds each month to keep longer-term borrowing costs down.
The decision comes as Chair Jerome Powell faces a delicate balancing act: The economy is clearly improving. But if Powell sounds too optimistic, investors might assume the Fed will reverse its low-rate policies prematurely. That could send bond yields rising and potentially weaken the economy as borrowing becomes costlier for companies and households.
Yet if Powell sounds worried that the job market is recovering only slowly, it might spark concerns that the Fed won’t be watchful enough about inflation pressures. That perception, too, could send bond yields rising as investors anticipate rising inflation.
Complicating the picture, the Fed last year announced a policy change in how it manages interest rates by saying it plans to keep rates near zero “for some time” even after inflation has exceeded its two per cent target level. The change meant the Fed is prepared to tolerate a higher inflation rate than it generally had in the past.
Previously, the Fed has often raised rates on just the prospect that inflation would rise, a policy that carried the risk of choking off a recovery.
This week’s Fed policy meeting comes as the economy’s outlook has improved significantly since it last met in late January. Job gains accelerated in February, sales at retail stores jumped after $600 relief checks were distributed at the start of the year and President Joe Biden signed his economic relief package into law last week. Average daily COVID infections have also dropped precipitously, and vaccinations have accelerated, raising hopes that Americans will increasingly travel, shop, eat out and spend freely after a year of virus-induced restraint.
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5:30 Coronavirus: Biden tells Americans they must beat the virus to get economy running
Coronavirus: Biden tells Americans they must beat the virus to get economy running
As a consequence, economists have been upgrading their outlooks, with many predicting that the economy will expand as much as seven per cent for all of 2021. That would be the fastest annual growth since 1984.
The brighter outlook has sent the yield on the 10-year Treasury note climbing as investors have dumped bonds, which are typically safe-haven investments during downturns. The yield on the 10-year topped 1.62 per cent in trading Tuesday; it had been below one per cent at the end of last year.
Still, the job market has a long way to go to a full recovery. With unemployment at 6.2 per cent, the economy still has 9.5 million fewer jobs than it did before the pandemic struck a year ago.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
