The Bank of Canada announced last Wednesday that it’s continuing to hold its overnight target rate constant at 1.75 per cent. No surprise there. What is interesting, however, is a major turn of events in the economic outlook.
The global economy appears to have gone from being a drag on Canadian growth to a strength, whereas the domestic Canadian economy, once a growth driver, appears to be slowing down. The Bank of Canada still faces a balancing act – although it at least has the tools to fight domestic weakness.
The target rate in Canada has remained constant since December, 2018. Elsewhere, several major central banks lowered their policy rates in response to earlier signs of weakness in the world economy and major…
International business breathed a sigh of relief with the signing on Jan. 15 of the U.S.-China Phase 1 trade deal. Markets reacted with typical exuberance, overlooking the fact this is an armistice, not a peace treaty.
But even a short-term downing of arms, if it leads to the two countries moving on to a truly comprehensive trade agreement, is better than a trade war and its global reverberations. We need to see how things unfold.
The deal has been cheered in U.S. President Donald Trump’s tweets and other quarters south of the border because of Chinese undertakings allowing greater American market access with fewer tied conditions, commitments for the benefit of U.S. companies only. Commentaries such as those in The New…
Canada and the rest of the developed world have entered an era of low interest rates and sluggish growth. We should expect interest rates to remain low by historical standards when the next recession occurs. Since the Bank of Canada will be unable to cut rates much below zero, monetary policy alone won’t be able to effectively fight the next recession. The government will have to use fiscal policy – its spending and taxation powers.
The challenge confronting us is to devise a framework for using fiscal policy in a timely, effective and responsible manner. A set of policies known as “unconventional fiscal policy” offers such a framework. A hallmark of this approach is that it explicitly links the expanded use of fiscal policy to…
