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The U.S. Federal Reserve issued its latest press statement last week and it didn’t leave me with the impression that it would raise its short-term policy rate in the near future, as some still expect it will.
The Fed’s timing matters to Canadian mortgage borrowers because the U.S. and Canadian economies are tightly linked, and as such, our monetary policies tend to move in the same direction over the long run, even though they can diverge for a period of time (as is expected to be the case if the Fed starts tightening any time soon).
Interestingly, while many economists think that the Fed will hike its policy rate as early as September, bond market investors are now pricing in only a 20% probability of that occurring.
One group has it wrong.
Here are five highlights from the Fed’s latest statement to help inform your opinion on who that might be, with my comments in italics:
- “Economic activity has been expanding moderately in recent months”. It’s hard for me to imagine how signs of “moderate” growth in the midst of the slowest recovery since the Great Depression would inspire a shift to tighter monetary policy."