They’ll never admit it, but the Americans lag us in several important areas: chip flavours, hockey talent, poutine, and (who could forget) interest rate cuts. This week, they’re about to start catching up in at least one of those domains.
Driving the news: The U.S. Federal Reserve is expected to cut interest rates for the first time since 2020 on Wednesday — the question now is how big the cuts will be and how markets will react.
- Investors have been predicting a quarter-percentage-point cut for weeks, but odds of a half-percentage-point chop increased last week and are now about even.
Why it’s happening: A combination of cooling inflation — the Fed’s preferred measure fell to 2.5% in August — and worrying signs of job market weakness appear to have convinced the central bank that unemployment is now a bigger concern than inflation.
Why it matters: At stake is the often-hoped-for, rarely-achieved soft landing of the economy, in which policymakers manage to tame inflation through higher interest rates without triggering a recession.
- The past six recessions have spiked unemployment to an average of 8.6%, more than double the current rate.
In Canada: The Federal Reserve dropping its rate closer to Canada’s will lend some support to the loonie against the U.S. dollar and give the Bank of Canada more freedom to continue with its own rate cuts.