Canada observers keeping a close eye on Fed path
The United States’ Federal Reserve is expected to hold rates in place after its June 11-12 meeting, continuing its wait-and-see approach as it weighs up whether economic indicators are trending in the right direction.
Michael Gregory, deputy chief economist and managing director of economics at BMO Capital Markets, said the Fed was likely to announce a continuation of its current strategy in its announcement this afternoon. He said the FOMC’s recent statements have underscored a lack of significant progress toward the inflation target of 2% and that while there has been some improvement in inflation metrics, particularly in April, more substantial gains are needed to confirm a sustained trend.
The Summary of Economic Projections (SEP) is expected to reveal a diminished appetite for rate cuts, especially for the current year. March’s projections hinted at cumulative rate cuts, but the upcoming report may show a shift towards a more conservative stance. With economic indicators such as real GDP growth and unemployment rates showing resilience, the median projections for growth and joblessness are likely to be revised accordingly.
In his press conference following the meeting, Chair of the Federal Reserve Powell is anticipated to emphasize the delicate balance between a strengthening labour market and persistent inflation concerns. Despite robust job growth and wage increases, inflation remains a point of contention. Powell is expected to reiterate that the current policy stance is sufficiently restrictive to temper inflationary pressures, while hinting that further rate hikes are unlikely, yet not entirely off the table.
Background to impact decisions
The broader economic landscape, both in the United States and globally, adds context to the FOMC’s decision-making process. Recent interest rate cuts by central banks such as the Bank of Canada and the European Central Bank have stirred speculation about the Federal Reserve’s next move.
However, the resilience of the US economy, coupled with relatively strong performance metrics, suggests that drastic measures may not be warranted at this juncture, according to Royal Bank of Canada (RBC) economists Nathan Janzen and Abbey Xu.
Wednesday’s release of the US Consumer Price Index (CPI) data will provide further insight into inflation trends, setting the stage for the FOMC’s decision. RBC economists expect modest improvements in headline CPI growth (holding at 3.4% year-over-year), supported by easing energy prices and a more subdued core price growth.
Looking ahead, market watchers will also keep an eye on key economic indicators, including manufacturing sales in Canada (likely increased by 1.2%) and household net worth (likely increased in Q1). Additionally, the looming threat of a strike by Canadian border workers adds a layer of uncertainty, with potential implications for cross-border trade and supply chains.
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