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Bank of Canada Governor Tiff Macklem
Are Americans and Canadians in for a soft landing?
As hopes for dodging a recession grow amid continuing affordability struggles, central bankers in the United States and Canada may be settling into a familiar pattern of cautious optimism.
Annual inflation in Canada dropped to 3.8% in September, well above the 2% target. Yet, on Wednesday, the Bank of Canada released its decision to hold interest rates at 5%, citing “clearer signs that monetary policy is moderating spending and relieving price pressures.”
Despite warnings from bank chief Tiff Macklem that rates could rise in the future, market watchers speculate that Canadians have seen the last hike for the foreseeable future. The possible rate peak comes after 10 increases since 2022, which saw the target rate hit a two-decade high. The bank also decided to hold interest rates steady at its last meeting.
South of the border, meanwhile, the US consumer price index rose 0.4% in September — following the previous month’s 0.6% increase. The country also added over 330,000 jobs.
Still, the Fed determined that the rate of price increases trending down was enough to warrant a pause, and it held rates at the 5.25-5.5% range, boosting confidence in a soft landing in the US.
Last week, Federal Reserve Chair Jerome Powell admitted to uncertainties in the market but said evidence suggested monetary policy “is not too tight right now.” Still, he suggested rates could hold — although, like Macklem in Canada, he cautioned that future hikes are possible.
Geopolitical pressure, including the war in Ukraine and the Israel-Hamas war, is leaving plenty of questions around future economic outcomes. Meanwhile, an expected rise in COVID cases, a possible US government shutdown, extreme weather events — with experts predicting a powerful El Nino event later this year — are factors to watch. We’ll be watching to see what effect they have as hopes for a soft landing and break from the madness of the last several years persist.
Gov. Tiff Macklem walks outside Bank of Canada building in Ottawa
IMF expects real GDP growth in the G7
The title of the IMF’s new World Economic Outlook says it all: “Navigating Global Divergences.” The organization expects Canada’s real GDP to grow by 1.6% next year, followed by the US at 1.5%. Both countries are ahead of the expected Euro area average of 1.2% and the advanced economy average of 1.4%. Meanwhile, the United Kingdom is expected to manage a paltry 0.6% percent, up from 0.5 in 2023, as it faces pandemic fallout and the lingering effects of Brexit.
Developing states, meanwhile, are expected to post higher growth than their advanced economy counterparts, with China looking at 4.2% and India at 6.3%. The developing and emerging economies group is looking at 4% growth in 2024, consistent with its numbers from the last two years.
The takeaway? The IMF is projecting low and slow growth throughout much of the world and “little margin for policy error.” That’s going to have politicians and civil servants on edge, particularly as geopolitical crises intensify. That’s the bad news. The good news is that these numbers suggest the odds of a soft landing are up, and slow growth is better than a recession.
The Graphic Truth: Cross-border economic anxiety
We wish we had better news, but the economic outlook from Tulsa to Toronto and Quebec to Los Angeles is nothing but bleak, according to an exclusive GZERO/MARU poll.
“There really isn’t much good news here on either side of the border,” says Maru Executive VP John Wright. “Increased interest rates combined with slow-to-fall inflation on essentials like groceries have put consumer-citizens in a dark cloud with not really much of a silver lining.”
The job market remains strong, any talk of the R-word (recession) is usually proceeded with a “mild.” But Americans and Canadians are feeling the squeeze. Both PM Justin Trudeau and US President Joe Biden are facing reelection, and they know that their fates are tied to how their economies perform.
At the moment, “the economy doesn’t favor either of the incumbent leaders,” Wright says. “When that changes, so will the likely fortunes for all.”
We look at Maru Public Opinion polling data on Canadian and American views about the economy and their ability to make ends meet.