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Last Friday, U.S. Federal Reserve Chair Janet Yellen gave a much anticipated speech at the Jackson Hole Summit, an annual meeting of the world’s central bankers in Jackson Hole, Wyoming. Fed Chair Yellen covered a wide range of topics and her words were carefully parsed by market watchers around the globe for hints of what the Fed might do and when.
As a reminder, the Fed’s actions matter to Canadian mortgage borrowers because our economy is tightly linked to the U.S. economy. For example, Bank of Canada (BoC) Governor Poloz has long said that any sustainable Canadian economic recovery must be underpinned by increased demand for our exports, and we sell about 80% of those into U.S. markets. The BoC believes that a rise in export demand would trigger a rise in business investment, which would then lead to productivity enhancements and fuel a rise in average incomes. Because this virtuous, self-reinforcing cycle starts with increased U.S. demand for our exports and because changes in U.S. interest-rate policy have a material impact on U.S./Canadian exchanges rates, the Fed’s actions have a direct, and at times substantial, impact on our economic momentum.
More bluntly, the Canadian perspective of the U.S/Canada economic relationship was summed up well by former Prime Minister Pierre Elliot Trudeau, who once said that living next to the U.S. “is in some ways like sleeping with an elephant. No matter how friendly or temperate the beast, one is affected by every twitch and grunt."
Speaking of those twitches and grunts, here are the highlights from U.S. Fed Chair Yellen’s market-moving speech last week, with my comments included: