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Hard Numbers: Trump seeks funds, Happiness drops, Inflation vs. interest rates, Bad air quality news, Measle cases rise
1 million: The campaign of former President Donald Trump called on one million supporters Wednesday to donate money as he struggles under the weight of his legal woes. Earlier this week, Trump – who remains a billionaire in terms of assets – failed to secure a bond for a $454 million judgment in a civil fraud case. If Trump can’t come up with the cash, his properties could be seized by New York’s attorney general.
15: Bummed out? The Great White North slid to 15th place in the annual World Happiness Report, down from No. 13 last year. But it was still well above the US, which dropped from No. 15 down to No. 23 in 2024. The dips in both countries were largely driven by unhappiness among people under 30.
2.8: Canadian inflation unexpectedly cooled in February, raising expectations that the Bank of Canada will cut interest rates in June. The consumer price index rose 2.8% last month compared to a year prior, surprising analysts who expected a 3.1% increase. Still, economists still expect the BoC to keep interest rates steady at its next meeting on April 10.
93: The US and Canada are dropping the ball on air quality. According to a report published Tuesday by Swiss air-quality monitor IQAir, only seven countries met the WHO’s guidelines for air quality in 2023 — Finland, Estonia, Australia, New Zealand, Grenada, Iceland, and Mauritius. Owing to last year’s record-setting wildfires, Canada was deemed the “most polluted country in Northern America” – ranking No. 93 worldwide, while the US stood at No. 102.
31: Measles is making a comeback in Canada and the US, thanks largely to unvaccinated travelers. Canada has seen at least 31 cases of the preventable disease so far this year and is also dealing with a shortage of vaccines. Meanwhile, the US has already tallied more cases in 2024 than the 58 instances recorded last year.
Will Japan raise interest rates … to zero?
Japan’s central bank will debate a landmark interest rate rise next week that could bring interest rates to a staggering 0% after nearly a decade of negative rates.
As the saying goes, there are four types of economies: developed, underdeveloped, Argentina, and Japan. While most countries have been working hard to cool inflation, Japan has struggled with the opposite problem, deflation, since the 1990s. Lower prices at the grocery store are nice, but consumers pay for it on the other end: Businesses see revenues fall, struggle to pay their debts, and lower wages or downsize to break even (mostly the former in Japan). The economy stagnates and ordinary families suffer.
Tokyo started running 0% interest rates in 1999 and negative interest rates in 2016 – in other words, encouraging companies to borrow money and keep cash flowing through the economy. It’s helped drive recent inflation, currently around 2.2%, above the target of 2%.
But is it the right kind of inflation? The Bank of Japan wants to make sure price increases are being driven by consumers spending more, and not costs on the producers’ side, before they hike rates. There are some promising signs, including Japanese trade unions securing the largest pay increase in 30 years from Japan’s largest corporations.
“All eyes are on the annual wage negotiations that will wrap up this week,” says Eurasia Group’s Japan analyst David Boling. “The Bank of Japan wants to see strong wage growth before it scotches the negative interest rate policy.”
We’re watching how cautiously central bankers choose to tack — if the climb to zero looks too steep next week, they can always wait until their April meeting.
Central bankers forecast clouds, with a chance of rate cuts
The millions of homeowners who have seen their mortgage payments double in recent years would no doubt concur with Mark Twain in his assessment of bankers – as the type of people who lend you an umbrella when the sun is shining and want it back as soon as it starts to rain.
Hopes for a break in the monetary policy clouds were frustrated this week as two North American central bankers said that interest rate cuts remain some way off.
Tiff Macklem, governor of the Bank of Canada, said yesterday that the bank’s governing council decided that rates will stay at 5%, at least until it meets again in April, as inflation of close to 3% means underlying pressures persist.
“We need to give higher interest rates more time to do their work,” he said.
The same day, Jerome Powell, chair of the Federal Reserve, told members of the House Financial Services Committee that the Fed is on a “good path” to achieving the desired “soft landing” of a growing economy with inflation back to its 2% target but that further progress is not assured.
The notes of caution come despite both US and Canadian economies avoiding recession. The US economy grew at an annualized rate of 3.2% last quarter. Even Canada’s anemic 1% growth rate suggests monetary policy is working to relieve price pressures, without choking demand.
Macklem said he is confident rates are high enough and that the discussion has now shifted to whether they need to stay at their current level.
Both central bankers characterized future progress as gradual and uneven, as wage growth remains in the 4-5% range.
But the unspoken pressure is political. A Liberal government in Canada will hand down a federal budget on April 16, less than a week after the next governing council decision. The budget date all but rules out the central bank's April meeting as a possibility for a rate cut, given the prospect of inflationary federal government spending.
In the US, it is an election year, which puts inevitable pressure on the Fed from politicians who will have to face angry voters. Powell said he acknowledged the risks of waiting too long to ease monetary policy and the damage that might cause the economy. But he said he did not want to ease credit conditions too soon and see inflation re-accelerate.
Investors expect an initial rate cut in June. Fed officials last year projected three quarter-point cuts this year, but Powell said the Fed would like to see more data to increase confidence that inflation is moving down to 2% before reducing the policy rate.
The benchmark rate has been held in the 5.25-5.5% rate since July.
For cash-strapped homeowners and consumers, the post-inflation rainbow can’t come quickly enough.
Rate cuts could help Biden and Trudeau’s reelection prospects
The polls are grim these days for incumbent governments. Both President Joe Biden and Prime Minister Justin Trudeau are trailing their challengers, Donald Trump and Pierre Poilievre, particularly when it comes to economic matters.
A new NBC News poll suggested only 36% of Americans approve of Biden’s handling of the economy, compared to 61% who disapprove. Trump held a 5 percentage point lead when it came to voting intentions. Similarly, two in three Canadians believe Trudeau is taking the country in the wrong direction, while Poilievre holds a lead of up to 15 points on voting intentions for an election that could be 18 months out.
Both men have seen the corrosive impact of rising prices on their popularity. Biden's approval ratings are lower than any president since George W. Bush’s second term.
It may be that both leaders have outstayed their welcome. But they may yet be saved by tumbling inflation, an easing of interest rates, and the short memories of voters.
In the US, the second half of 2023 saw prices rising at around 2%, down from a high of 7.7%. That has happened, even as America sees strong job growth, creating double the forecast number of jobs in January at 353,000 new positions. The unemployment rate is just 3.7%.
Biden has already been selling that message. “Experts said that to get inflation under control, we needed to drive up unemployment. We found a better way,” he tweeted.
The Canadian picture is not quite as robust but still healthy. Unemployment is near historic lows at 5.8%, and poverty levels have halved in recent years, thanks to generous income transfer initiatives like child benefit and a national child care program. But, according to RBC Economics, rising interest rates have caused real pain.
Per capita household income rose by 2.8% from the fourth quarter of 2022 to the third quarter of 2023, while debt repayments rose by 6.4% in the same period, it said.
RBC predicts 2024 will remain a tough year, but with central banks looking to pivot to interest rate cuts, the ratio of household debt to income should rise less this year than in 2023. With polls showing that the rising cost of food and fuel are the preoccupation of up to three in four voters, any relief could have an impact on coming election campaigns.
No rate cut just yet
The Bank of Canada held interest rates steady at 5% for the fourth time in a row on Wednesday, signaling that cuts may be coming, as analysts expect, in the spring. The bank is now focused on “how long it needs to stay at the current level,” Bank of Canada Governor Tiff Macklem said.
In the United States, investors are waiting to see what the Fed does next week when policymakers meet. Some investors have warned that a hot stock market could cause the Federal Reserve to keep rates higher for longer than expected.
Both Joe Biden and Justin Trudeau will be hoping that inflation continues to slow, stabilizing consumer prices and allowing central bankers in both countries to stop restricting the supply of money before voters go to the polls again.
Know when to hold ‘em
As always, the bank said it may raise rates in the future if inflation picks up. But experts are warning that with mortgage renewals coming due for 74% of Canadian homeowners – roughly three million people – over the next year and a half, there will be a significant risk of default. Plus, the risk of a recession still looms. That may push the bank to consider a cut sooner rather than later. In September, Prime Minister Justin Trudeau predicted rates would fall by mid-2024.
Economists in the United States are thinking roughly along the same lines as Trudeau – though they’re a bit less optimistic. As the Financial Times reports, its FT-Booth survey expects the Fed will hold rates at a two-decade high until “at least” July, possibly later. The US economy has remained strong, with GDP growth hitting an annualized 5.2% in the last quarter.
Observers are watching for signs of a recession on both sides of the border while households stretch to meet monthly bills, rent, and mortgages. The Bank of Canada and the Fed will continue to walk a fine line between taming inflation and sending households over the financial cliff.
Could union wage hikes worsen inflation?
It may be cold out, but bankers up north are sweating thanks to a flurry of union settlements that could, according to a new report from Toronto-Dominion Bank, have “staying power.”
For years, unionized workers’ pay failed to keep pace with inflation, but now labor negotiators are pressing to close the gap. The successful UAW strike in the United States led to 11% wage increases, and Canadian union settlements, though not as high, are rising as workers try to make up for ground lost to inflation.
This is not expected to slow the struggle against inflation in the United States because only 10% of the US workforce belongs to unions. But in Canada, where about 30% of the workforce is unionized, juicy settlements have a bigger economic impact.
While the deals should not be enough to cause inflation, they may make it harder to tame, and this could mean more trouble for Justin Trudeau’s embattled government if Canadian voters see inflation falling in the United States more quickly than in Canada.
Plus, Canadian homeowners are angry about the looming mortgage shock that will see many of them renew at higher rates. Finance Minister Chrystia Freeland just introduced the Canada Mortgage Charter, a set of voluntary guidelines to protect homeowners under financial pressure, that she expects banks to follow. But more than three million Canadians are facing mortgage renewals in the next 18 months, which means higher payments for most – as well as foreclosures for some.Hard Numbers: Rwanda’s Kagame will run again, the EU takes on Uber, water contamination threat in Libya, US Fed keeps cool
4: Rwanda’s President Paul Kagame, who has been in power since 2000, announced that he’ll run for a fourth term in next year’s election.
Kagame, who has been accused of cracking down on the opposition, tweaked the constitution back in 2015 to extend presidential term limits. Asked about what “the West” might think of his move, Kagame, didn’t mince words: “What these countries think is not our problem.”
40: A top Uber executive has warned that an EU proposal to classify gig workers as employees could boost ride prices by as much as 40%. Brussels says Uber should provide more job security and benefits for its employees. Uber, which has come up against similar battles in Spain, the UK and elsewhere, says the measure will hurt consumers and lead to “devastating” job losses.
4,000: Over a week after a catastrophic flood tore through two dams in eastern Libya, killing 4,000 people (while 9,000 remain missing) the UN has warned that sewage is contaminating water supplies, raising the specter of waterborne diseases like cholera, diarrhea, and hepatitis.
5.25-5.55: The US Federal Reserve held interest rates steady at 5.25-5.55, still the highest level in more than two decades after 11 rate hikes beginning in March 2022. The decision gives policy makers some breathing room to plot their next moves amid subsiding inflation. Still, with price growth well above the Fed’s 2% target, rates could stay above 5% well into 2024, analysts warn.Correction:Yesterday, we incorrectly stated that the Fed's pause was the first in 18 months. The Federal reserve also paused rate hikes in June, 2023. We regret the error.