With Canada so married to the U.S. economy, Canadian rate speculators are perpetually glued to U.S. Fed announcements.
Today we had a unique opportunity to watch U.S. Fed
chief, Ben Bernanke, hold a scheduled press conference (Fed chairmen
never do that). He said he wanted to “add transparency” to the Fed’s
plans for future monetary policy.
Bernanke made several points of note for Canadian rate watchers. He said:
-
“Exceptionally low” U.S. interest rates will last for an “extended
period.” The Fed has used that “extended period” phrase since March
2009.
-
U.S. inflation is picking up but “longer term inflation expectations
have remained stable and measures of underlying inflation are still
subdued."
-
2011 U.S. growth expectations have been cut to 3.1% (from 3.3%)
-
The U.S. labour market is in a “very, very deep hole”
-
Long-term U.S. unemployment is the “worst” it’s been since WWII
-
Rising oil prices are “bad for the recovery.”
All the Fedspeak of late continues to point to a slow and measured
increase in U.S. rates, starting no earlier than late this year or early
2012.
A cautious Fed means the Bank of Canada
will continue to be under less pressure to lift rates here. Mind you,
analysts still expect the BoC to operate somewhat independently of the
Fed thanks to Canada’s firmer economic footing.
The Fed aside, most economists are still predicting the next Canadian rate increase will fall on July 19…for what that’s worth.
Sidebar: Bernanke said today that the reason he makes vague projections is because “we don’t know with certainty” how the economy will evolve.
That’s a good reminder of how imperfect economic forecasting is…because if the Fed doesn’t know, no one knows.
Rob McLister, CMT
