At some moments practically cheery and at others his familiar dour self, U.S. Federal Reserve Chair Jerome Powell on Wednesday seemed delighted by the economy’s speedy recovery so far but pessimistic that the pace can continue.
For Canadians weighed down with mortgage debt or for those looking to buy a home, the best news was that Powell and his advisers predict that North America’s record-low interest rates — sitting at below one-quarter of a per cent — will continue at least until the end of 2023.
While the Bank of Canada sets rates independent of its U.S. counterpart, Canadian lending is closely tied to commercial rates set in New York, which in turn are guided by the Fed.
But on the pessimistic side, there’s the reason for those continued low rates. Powell warned that the unexpectedly quick recovery in the economy following the outbreak of COVID-19 earlier this year is not likely to persist and that without more government spending, it will be even longer before the other half of the 22 million people thrown out of work in the U.S. find jobs again.
Fiscal boost worked
“There’s been a really positive effect,” Powell said, referring to government spending so far that has already knocked the U.S. unemployment rate to just above eight per cent — down from nearly 15 per cent in April.
Not only that, but the U.S. housing market, just as in Canada, has bounced back strongly. There are also signs of renewed business spending.
“That said, my sense is that more fiscal support is likely to be needed,” Powell told reporters at Wednesday’s news conference in Washington following the release of the Fed’s latest policy statement. “Of course, the details of that are for Congress, not the Fed, but I would just say there are still roughly 11 million people still out of work due to the pandemic.”
Just like in Canada, low interest rates have helped the U.S. housing market bounce back. For Canadians carrying mortgage debt or for those looking to buy a home, Powell and his advisers predict that North America’s record-low interest rates will continue at least until the end of 2023. (Don Pittis/CBC)
Just like the Bank of Canada’s governor, Tiff Macklem, last week, Powell expressed strong concern for the growing gap between rich and poor that has been accentuated by the economic crisis due to COVID-19. Just as Macklem suggested the best he could do was stimulate the economy in an attempt to “raise all boats,” Powell admitted it was hard for the Fed to correct wealth differentials.
But he made it clear that the central bank’s research shows that a spreading gulf in relative wealth was not just a social concern but something that was bad for the entire economy.
“The productive capacity of the economy is limited when not everyone has the opportunity, the educational background and the health care — all the things you need to be an active participant in our workforce,” he said.
Once again, Powell said tinkering with redistribution was the job of elected officials, not the Fed. But he said the recovery after the Great Recession, which followed the 2008 financial crisis, showed that the strategy used by the bank at that time could work again.
By pumping up the economy with monetary stimulus, the Fed helped bring unemployment down to record lows, and statistics now show that before the latest crisis, low unemployment had begun to push wages up.
No nipping inflation in the bud
Unlike after that recovery, the bank’s innovation this time is that it will make no attempt to nip inflation in the bud with precautionary rate hikes. Instead, the Fed’s new policy will be to welcome inflation above two per cent until such time as jobless rates fall again.
One reporter at the news conference expressed concern that such low rates for so long would create an asset bubble in stock markets, leading to a crash. The same worry has been expressed in Canada as home prices soar to new heights.
But Powell said the Fed would keep a close eye on markets and watch for instability.
People look over job applications at an Illinois Department of Employment Security centre in Arlington Heights, Ill., in May. While the U.S. unemployment rate has fallen to just above eight per cent from nearly 15 per cent in April, 11 million people remain unemployed due to the pandemic. (Nam Y. Huh/The Associated Press)
An interesting question that Powell never really answered was whether those 11 million unemployed would get their jobs back only when the face-to-face industries where many had been employed resumed, or whether the economy would have to create new and different jobs.
“All of this recovery we’ve seen is in a context where people are still at risk of catching it, and yet we’re able to resume lots and lots of economic activities,” Powell said, referring to the coronavirus. Defeating the disease with a vaccine or by some other means could mean a sharp rebound.
But until that time, without government support to tide over those from industries where millions remain jobless, “that will show up in economic activity,” he said.
“It will also show up in things like evictions and foreclosures and, you know, things that will scar and damage the economy.”
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.
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.
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.
