As countries around the world start rolling back interest rate hikes, U.S. Federal Reserve Chair Jerome Powell says he needs more information to convince him the economy has cooled down enough before following suit.
Driving the news: Hints on how inflation in the U.S. is faring against high interest rates is set to be released early this morning. Consider it the official kickoff for what’s set to be a months-long waiting game ahead of a will-they-or-won’t-they September rate decision by the Fed.
- Like many central banks, the Fed raised interest rates between 2022 and 2023 as fast as banker-ly possible. It’s since held the benchmark rates at a range between 5.25% and 5.5%.
Why it matters: While there’s no pact to keep rates aligned, the loonie does benefit when the Bank of Canada follows the Fed. If rates are higher in the U.S., so are the returns on some investments, which can boost the flow of money away from Canada and into the U.S.
- The U.S. economy held up remarkably well while the Canadian economy started to feel the effects of high rates, paving the way for the Bank of Canada to cut the policy rate to 4.75% in June.
Big picture: It’s complicated. Inflation for services and shelter in the U.S. is still out of whack, but the labour market has started to cool. Powell will have to be sure that the demand stoked by taking the foot off the rate brakes won’t reignite inflationary pressure.—SB