Fed and Bank of Canada hold back on rate rises: Stimulus continues Smart decisions

Recently both the Federal Reserve  and the Bank of Canada made smart decisions not to increase rates despite pressure from some less well informed quarters that they should do so as believers in the NAIRU rate are still convinced that inflation will rear its head now that unemployment is 4 .2% in the US and approaching 6% in Canada. But the most recent inflation rate on all items excluding food and gasoline prices which were affected by hurricane disruptions shows no sign yet of approaching their targeted inflation rate of 2 %. The US rate was a mere 1.3 % and the Canadian rate was also below the 2 % target.

The Canadian Finance Minister Bill Morneau also delivered an upbeat fall economic statement that celebrated the fact that growth continued to be moderately strong, the projected budgetary deficit was expected to be lower than predicted and unemployment could well drop below 6 % in the coming months. All in all a vindication of the policy position I have been suggesting for a long time. The most effective way to respond to an economic shock like the crash and subsequent slump is to run a significant  budget deficit which invests in people, their social and educational needs and physical infrastructure combined with a strongly accommodating monetary policy using quantitative easing where appropriate to ensure low interest rates. This is what has been done and the results are positive.

 

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About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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