For the week of August 27 – 31.
Fed chairman, Jerome Powell, made his first speech at the Kansas City Fed’s Annual Policy Symposium in Wyoming on Friday. Powell noted the current path of the gradual interest hikes is FOMC’s approach to balancing the expansion shortening if rates move too fast, or overheating if rates move too slowly. Powell acknowledged although unemployment is low, “there does not seem to be an elevated risk of overheating.” He continued to note estimates regarding academic model usage were at best “hazy” navigational guides, further distinguishing the fact that monetary policy is based on economic performance, and one of the main contributing factors to the conservative approach of gradual rate hikes. The Fed chairman said he expects the economy’s “strong performance will continue” and the “gradual process of normalization remains appropriate.”
During an interview in Wyoming on Friday, Bank of Canada Governor, Stephen Poloz, noted although the recent headline inflation of 3 percent is transitory and will eventually reverse, the focus is on the stability of core inflation, which is near its 2 percent target. Poloz also commented digitization is one of the main reasons why not only economies have more capacity to grow without fueling inflation, but also why interest rate normalization by traditional models is slower than predicted. Digitization has already led upward revisions of growth and investment in previous years, and possibly under-reported international trade.
This week will be relatively quiet for Canada; the only notable economic release will be the Q2 GDP figures on Thursday, which is the last piece of important data before the Bank of Canada (BoC) policy meeting on September 5. Although the BoC has previously raised interest rates four times within the last year, market participants are expecting as many as three more future hikes. Major releases in the US this week include wholesale inventories, FDP numbers, personal income/spending data, and the University of Michigan Sentiment gauge.
Both US and Canada government yields are trading flat to 2bps higher with S&P futures higher (+10.3). The Canadian dollar is trading slightly lower this morning after Poloz’s comments this weekend. Today’s expected range of Canadian dollar is 1.2998 – 1.3098.