What's New

Category: What's New in 2009

US Interest Rate Announcement 01.27.2010

Today’s interest rate announcement contains some key insights into the path of the US economic recovery.

· US economic activity has continued to strengthen since the December meeting

· Consumer spending has been moderately expanding but weak labor markets continue to hamper spending

· Employers are still not hiring, indicating that a full blown consumer led recovery is well into the future, and as such increases in interest rates are well off

· Financial markets have stabilized and are supportive of economic growth, despite a continued contraction in bank lending

· The US Fed anticipates that inflation in the mid to long term will remain stable and subdued, further supporting no increases in interest rates (Inflation is a non-issue)

· The Fed is now not expected to increase rates until 2011

· Of interest is the fact that the vote was not unanimous. One governor voted in favor of wording changes.

Implications:

· Canada to expect slow growth from the US spillover

· Canadian inflation should thus be subdued for a period as well (we could see resource inflation though)

· The implication is that Carney’s conditional commitment to hold Canadian rates till at least June is now firmly entrenched