Author: Danny Popescu | November 8, 2021
Following last week’s action by the Bank of Canada to eliminate its bond-buying program, the U.S. Federal Reserve (Fed) took a similar and more protracted approach. Both are reducing support for economic recovery to curtail inflation, which is much higher than either central bank would prefer. Additionally, the temporary nature of price increases is being questioned. As a result, the Federal Reserve will reduce bond purchases, which have been $120 Billion per month by $15 Billion each month. If this reduction schedule holds the bond-buying program (known as quantitative easing) will end in June of next year. The purchases of bond helps stimulate economic activity by reducing long term interest rates. Fed Chair, Jerome Powell, indicated that short term interest rates would remain unchanged. A video of Powell’s announcement is available at: https://www.federalreserve.gov/monetarypolicy/fomcpresconf20211103.htm
Canada added 31,000 jobs last month and the unemployment rate fell to 6.7%. The prior month had nearly five times as many jobs, which may indicate a softening of employment results. Last month the U.S. economy underperformed in job creation but has rebounded by adding 531,000 jobs in October and lowering the unemployment rate further to 4.6%. Also, the American wage rate has increased by 4.9% compared to the same period last year. Rising U.S. wages along with more persistent housing costs and food prices may have contributed to the Fed’s decision to slow its bond purchasing program to temper inflation.
Positive economic predictions are beginning to emerge as exists as-chain disruptions are expected to ease over time and the effects of the Delta variant of the coronavirus become more muted.
What’s ahead for this week and beyond?
In Canada, the economic announcements scheduled are not significant for most retail investors. Bond markets in Canada (and the U.S.) will be closed on Thursday for Remembrance Day. It will be an important week for earnings results as several Real Estate Investment Trusts (REITs) will be announcing their performance figures.
In the U.S., the most recent inflation numbers will be released through the announcement of the Consumer Price Index. Wholesale inventories will be announced and the Chair of the Federal Reserve, Jerome Powell, will be speaking at several conferences and will likely comment on the Fed’s decision from last week.
Globally, China will announce its inflation numbers for both consumers and companies as their CPI and Producer Price Index (PPI) are released. Germany will also release its CPI.
Have a great week.
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