The article discusses the dilemma facing the Bank of Canada, which is whether or not to lower interest rates as an insurance measure despite a strong domestic economy. The bank’s governor, Stephen Poloz, has stated that the trade wars are the most important risk and have released research suggesting that an escalation of tariffs would cause more harm than good.
The article highlights the views of various economists, including Frances Donald, who believes that the Bank of Canada should move its perspective away from the local economy and focus on global risks. She states that if the U.S. goes down, Canada will likely follow with a 6-12 month lag.
The article also quotes Janet Yellen, the previous Fed chair, who believes that while the odds of a recession have risen, she thinks that the U.S. economy has enough strength to avoid one.
The Bank of Canada is considering dropping interest rates as an insurance measure, despite most indicators being positive. However, the bank will need tangible evidence that the domestic economy is in trouble before making any changes.
Overall, the article suggests that the Bank of Canada’s decision on interest rates in September will be influenced by global risks and trade uncertainty, rather than just looking at the local economy.
Key points:
- The Bank of Canada has a dilemma: whether to lower interest rates as an insurance measure despite a strong domestic economy.
- Trade wars are the most important risk facing the Canadian economy.
- The bank’s research suggests that an escalation of tariffs would cause more harm than good.
- Economists believe that if the U.S. goes down, Canada will likely follow with a 6-12 month lag.
- Janet Yellen believes that while the odds of a recession have risen, she thinks that the U.S. economy has enough strength to avoid one.
Implications:
- The Bank of Canada’s decision on interest rates in September will be influenced by global risks and trade uncertainty.
- If the bank decides to lower interest rates, it would be an insurance measure rather than a response to local economic conditions.
- A cut in interest rates could have implications for the Canadian dollar and other asset prices.