Don Pittis: Poloz Has It Mostly Right But The Future Is Complicated

In case you are a currency trader sitting tight for Bank of Canada governor Stephen Poloz to shake up the loonie this week, you’re likely out of luck. Be that as it may, in the background, Poloz and his group will work angrily to assimilate some confusing new data. That incorporates signs of a long-predicted shift in the Canadian property market and “abysmal” Canadian growth figures. Poloz must get ready for an uncertain autumn.With tomorrow’s bank interest rate declaration limited to a paper release, the perspectives of Poloz and companions will be significantly more impenetrable than expected. What’s more, with no news conference booked for Poloz to explain himself, a change in interest rates by the chief central banker is practically unimaginable.

With the bank’s interest rate declaration limited to a paper release, the perspectives of Poloz and companions will be significantly more impenetrable than expected. What’s more, with no news conference booked for Poloz to explain himself, a change in interest rates by the chief central banker is practically unimaginable.

According to the bank’s most recent forecast, the bank’s statement can scarcely neglect to specify it’s over-the-top miss on the Canadian economy, which “grew by 2.4 percent in the first quarter but is estimated to have contracted by one per cent in the second quarter.”

Rather, the actual constriction, at 1.6 percent, was nearer to two than one and far more terrible than the 1.5 percent consensus from private sector economists. However, from multiple points of view, Poloz, and his group have been right on the money. Indeed, even before we saw the impact of B.C’s new tax on foreign property buyers, the bank was cautioning of “financial vulnerabilities” in Toronto’s and Vancouver’s overheated housing markets.

Canadians can only hope the bank’s aim holds true.  Although July growth figures won’t be available for another month, Canada had one positive indicator last Friday when the country’s trade deficit tumbled by half, a figure much better than almost anyone had predicted. We also get a good substitute indicator at the end of this week when Statistics Canada releases its labour force survey for the month.

Recently Canada has not been keeping pace with its southern neighbor’s help in employments and falling unemployment, which, in spite of missing desires on Friday, keep on being more stronger than Canada’s. In spite of the fact that Janet Yellen, the U.S. chief central banker, may not raise interest rates this year, at least not before the presidential election, there have been hints that rising wages and an enhancing employment picture in the U.S. could push her to cool the economy well before Canada is prepared. At that point, notwithstanding keeping Canadian interest rates consistent, it would start to push the Canadian dollar down. In any case, that may bring about more headaches for the Bank of Canada if there are further signs of weakness in the Canadian housing

In any case, that may bring about more headaches for the Bank of Canada if there are further signs of weakness in the Canadian housing market since Canadian mortgage rates are strongly influenced by New York bond rates. In spite of some positive signs of a U.S. rebound, it may be, beyond any doubt,  a long way before the American and worldwide economies are out of the woods. Numerous stress that ascents in U.S. stocks are a chimera. Stock buybacks are declining and there are few signs that corporate profits are filling the hole.

A few economists stress that, despite the feeling most of us have that U.S. growth has been lifeless since its long retreat from 2007 to 2009, on the simple basis of tallying the years between historical recessions, the nation is expected for another at any time.

While Poloz et al. have every reason to be optimistic that Canada’s non-energy exports are on a comeback, a U.S. recession or a slump in housing, with inevitable economic implications, remains something for which the bank must make contingency plans. With rates so near zero, further cuts would push Canada into the weird world of negative interest. If that remains a serious alternative, the bank must gauge whether such a move has been effective in other places it’s been tried and work through its potential implications for the rest of the Canadian economy.