Canada Monetary policy U. S.

A cut by Fed and an insurance cut provision by BoC

Both the U. S. Fed and the Bank Of Canada announced monetary policy today. In my view they are the best policies they have ever made respectively since the two chairmen took over their jobs from their predecessors. The U. S. Fed, as expected, cut interest rate by 25 basis point and suggested that there would be no need for further cut unless the economic conditions change significantly. The Fed, in a smart move and at a friendly gesture, compensated and comforted the market by assuring that the low policy rate will stay for the foreseeable future and would do so even at the cost of slight high inflation or inflation risk.

The central bank of Canada, meantime, recognized its lonely position to keep rate high as many central banks in the world are at ease mode. The bank suggested an “insurance rate cut” is coming. It said that “the outlook for the global economy has weakened further since (July). Ongoing trade conflicts and uncertainty are restraining business investment, trade, and global growth. A growing number of countries have responded with monetary and other policy measures to support their economies. Still, global growth is expected to slow…… Canada has not been immune to these developments. Commodity prices have fallen amid concerns about global demand……. Growth in Canada is expected to slow in the second half of this year to a rate below its potential. This reflects the uncertainty associated with trade conflicts, continuing adjustment in the energy sector, and the unwinding of temporary factors that boosted growth in the second quarter. Business investment and exports are likely to contract ……”. The bank was explicit in its policy statement that the Canadian dollar is over strong at the current level.