Inflation movement: Canada’s inflation rate hits 2% target, reaches lowest level in more than three years, 2) U.S. Federal Reserve cuts interest rates by half a percentage point
Courtesy Barrie360.com and Canadian Press
By Nojoud Al Mallees, published Sept. 17, 2024.
Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
2) U.S. Federal Reserve cuts interest rates by half a percentage point
Courtesy CBC Business News, Sep 18, 2024
The U.S. Federal Reserve cut interest rates by half of a percentage point on Wednesday, kicking off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that followed growing unease about the health of the job market.
“The committee has gained greater confidence that inflation is moving sustainably toward two per cent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” policymakers on the U.S. central bank’s rate-setting committee said in their latest statement, which drew a dissent from Governor Michelle Bowman, who favoured only a quarter-percentage-point cut.
Policymakers see the Fed’s benchmark rate falling by another half of a percentage point by the end of this year, another full percentage point in 2025, and by a final half of a percentage point in 2026, to end in a 2.75 per cent to 3.00 per cent range.
The endpoint reflects a slight upgrade, from 2.8 per cent to 2.9 per cent, in the longer-run federal funds rate, considered a “neutral” stance that neither encourages nor discourages economic activity.
Even though inflation “remains somewhat elevated,” the Fed statement said policymakers chose to cut the overnight rate to the 4.75 per cent to 5.00 per cent range “in light of the progress on inflation and the balance of risks.”
The Fed “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” with attention to “both sides of its dual mandate” for stable prices and maximum employment.
Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET to discuss the policy decision and the economic outlook. The Fed’s policy meeting this week was its last before voters go to the polls in what is expected to be a close U.S. presidential election on Nov. 5.