Bank of Canada bucks the trend, but for how much longer? – Globe and Mail Op-Ed

The Bank of Canada announced on Wednesday that it was holding its overnight rate constant at 1.75 per cent. Although this was what the markets expected, it flies in the face of the general trend toward rate cuts by central banks around the world. It seems unlikely that the Bank of Canada can resist conforming to this trend for much longer, despite the overall strength of the Canadian economy.

Current conditions certainly seem to justify holding the line. Second-quarter economic growth was particularly strong, making up for weakness in the first quarter. It exceeded market expectations and the estimate of the Bank of Canada in its July Monetary Policy Report. Headline inflation in July was steady at 2 per cent. This was also…

Hugh O’Reilly on BNN – Trade war threatening spikes in bonds values

Hugh O’Reilly, senior fellow at C.D. Howe, executive in residence at the GRI and former CEO of OPTrust, joins BNN Bloomberg to discuss global risk and the geopolitical events he is worried about impacting investors’ portfolios.

Bank of Canada Should Hold the Overnight Rate at 1.75 Percent Next Week, Cut to 1.25 Percent in Six Months: C.D. Howe Institute Monetary Policy Council

August 29, 2019 – The C.D. Howe Institute’s Monetary Policy Council (MPC) has recommended that the Bank of Canada keep its target for the overnight rate, its benchmark policy interest rate, at 1.75 percent at its next announcement on September 4, 2019, before lowering it to 1.25 percent by March 2020.

The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. William Robson, the Institute’s President and CEO, chairs the Council. Council members make recommendations for the Bank of Canada’s upcoming interest-rate announcement, the subsequent announcement, and the announcements six months and one year ahead. The Council’s formal recommendation…

Central banks need new toolkit in world where uncertainty seems to be increasing without bounds – National Post Op-Ed

Uncertainty dominates today’s policy landscape. Just last week it figured prominently and explicitly in the U.S. Federal Open Market Committee’s news release and press conference announcing its controversial interest rate cut.

Recognizing the nature and extent of the uncertainty facing us today is not hard. We have trade war uncertainty and associated uncertainty about the future of the global trading system, uncertainty about a changing world order, uncertainty about global governance and rules of the game, uncertainty related to technological disruptions, and climate change uncertainty.

But what exactly do we mean by uncertainty? How is it different from risk? And what does the rise in uncertainty mean from a monetary…

Martin Eichenbaum – Planning for the Next Big Recession

Glen Hodgson – The Next Recession: Where Does it Come From and is Canada Ready?

Is Canada ready for the next recession? – Globe and Mail Op-Ed

It has been a full decade since the last recession, which accompanied the 2008-09 financial crisis. The global and domestic economies are at a mature stage of the economic cycle, and numerous excesses are evident. Not surprisingly, there is a recurring buzz from international and a few domestic commentators on recession risk and who will be affected. Accurately predicting is tricky but there are plenty of reasons to be concerned.

Let’s consider two key questions on the next recession. First, what will cause it? A combination of negative factors occurring in close proximity will be the most likely cause. The next Canadian recession is unlikely to be because of slamming on the monetary brakes to defeat inflation, as arguably…

Kronick, Omran – On the Hunt for 2 percent Inflation

Into the Unknown: Reflections on Risk, Uncertainty and Monetary Policy Decision-making

The Bank Of Canada Needs A Plan For The Next Big Recession — And They Should Share It – National Post Op-ed

The Bank of Canada normally responds to the threat of a large recession by aggressively cutting interest rates. It won’t be able to use this strategy the next time around: short-term interest rates would hit zero before the job is done. Instead, the Bank will have to rely on large-scale purchases of long-term financial assets (quantitative easing) and a big depreciation of the Canadian exchange rate. While helpful, these policies are unlikely to be as effective as the Bank’s traditional strategy for fighting recessions.

The Bank’s benchmark-interest rate is now only 1.75 per cent, well below its level of 4.5 per cent on the eve of the 2007 financial crisis. Long-term interest rates are even lower. There is no reason to expect…

The Bank of Canada missed an opportunity to raise rates – Globe and Mail Op-Ed

The Bank of Canada held its overnight rate constant at 1.75 per cent this week. Markets had completely priced this in, but nevertheless, there are reasons to be surprised by this decision, and perhaps even consider it a missed opportunity.

Let’s start with the state of the Canadian economy. Economic growth is rebounding in the second quarter after a sluggish first quarter. Some of this is because of temporary factors such as increased oil production. However, other factors, including the labour market, appear quite strong.

Average hourly earnings have grown in five consecutive months, peaking at a growth rate of 3.8 per cent in June. May unemployment fell to 5.4 per cent, the lowest rate since Canada began tracking…

Sorry, ‘Modern Monetary Theory’ doesn’t mean we can just run the presses and print off scads more cash – National Post Op-Ed

Modern Monetary Theory (MMT), once a relatively obscure branch of macroeconomics, has recently gained star status. It is riding high in the popular press in the U.S. and has been endorsed by many in the left wing of the Democratic party as a way of financing massive spending programs such as the “Green New Deal” and “Medicare for All.” MMT holds that a country with its own currency doesn’t have to worry about accumulating government debt: it can always print money to service the interest on its debt and pay down the principal. If this seems like magical thinking, it’s probably because it is.

MMT’s basis is that fiscal policy is the key to achieving full employment, using the printing of money to finance government spending. (“…