U.S. Fed decisions don’t have much bearing on BoC interest rates

U.S. Fed decisions don’t have much bearing on BoC interest rates

U.S. Fed decisions don’t have much bearing on BoC interest rates

Noting that the two nations’ fundamentals are quite different, Deloitte chief economist Craig Alexander has argued that the Bank of Canada is in no way facing pressure from the U.S. Federal Reserve to cut interest rates.

Mostly, this is because the United States is feeling the bite of the cross-Pacific trade war – a situation that Canada is not significantly burdened with.

Last month, the BoC decided to retain its interest rate at 1.75% for the sixth consecutive policy meeting.

“The two central banks didn’t move in lockstep with rates going up, so they don’t need to move in lockstep with rates coming down,” Alexander told Global News. “I don’t think the economic indicators, at this point, are flashing that a recession is upon us.”

“One could argue that the Fed went farther faster and now it’s going reverse some of that, so there isn’t the pressure on the Bank of Canada to respond.”

If anything, a Fed rate cut can even push further U.S. and foreign demand to Canada, along with some beneficial upward pressure on the loonie.

Alexander added that any BoC cut should be done later, and only to pre-emptively deal with an imminent downturn.

Manulife Investment Management chief economist Frances Donald stated that any economic movement – for instance, hints of recession – south of the border will take time to manifest in Canada.

“What’s going to matter most to markets, to economists, to global central banks is not what the Fed does … but why the Fed moves,” Donald explained. “If the U.S. economy suffers a recession, so too will Canada — with an approximate six to 12 month lag.”