The Federal Reserve released its March 16 rate decision meeting minutes yesterday where it spread optimism among investors as they vowed to keep interest rates at record lows to boost the ongoing economic recovery, where stocks rose as the Fed sees that the recovery is strengthening despite the fact the recovery might be curbed due to elevated unemployment.
“Recent data pointed to a noticeable pickup in the pace of consumer spending during the first quarter, participants agreed that household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth,”. Therefore with inflationary levels projected to remain subdued, the Federal Reserve assured markets that borrowing costs will remain unchanged for an “Extended Period”, given the fact that the Minutes showed that Mid-Term inflation risks might be to the upside, but overall the Feds described the outlook for inflation as “Reasonably Well Anchored”.
Moreover, the Federal Reserve admitted that the biggest challenges ahead of the recovery process is tight credit conditions and elevated unemployment, whereas the Fed noted that bank’s lending is still “Contracting” while unemployment will continue to hover above 9.0 percent throughout this year with outlook for unemployment to range between 9.3 – 9.7 percent by the end of this year.
But with the economic recovery undergoing, conditions will start to advance in a rapid and fast pace as expectations show that the world’s leading economy might witness a slight setback with growth throughout the first six months of this year, but by the start of the second half of this year, the economy might witness a rapid and strong growth as conditions continue to improve in various sectors in the economy, as they recover one by one from the worst financial crisis in decades, therefore the Fed might decide to tighten its policy in the upcoming period “Promptly if evidence suggested that economic activity was accelerating markedly or underlying inflation was rising notably” as stated by policy makers in yesterday’s FOMC Minutes.
Today’s news hold little significance for investors as the U.S. will release its Consumer Credit report for the month of February, which is expected to show a drop of $0.7 billion, compared with the previous reported surplus of $5.0 billion. Therefore investors will continue with the optimism wave that dominated markets since the start of this week as it is backed by Friday’s Nonfarm payrolls that showed that the U.S. economy managed to add 162 thousand jobs in the month of March, while data earlier this week from the housing and services sectors provided further optimism and boosted confidence in the U.S. economy, as the reports from both sectors came out better than expected.
Meanwhile Canada, will release its Building permits report where it's projected to show a rise in house permits by 2.1 percent in February, compared with the previous reported drop of 4.9 percent in January; Signaling as well that the Canadian housing sector is following its peer in the U.S. into recovery, as both sectors were hammered down severely by the worst financial crisis in decades as the U.S. economy is considered the biggest trading partner with Canada.
In addition, the Canadian economy will release its IVEY PMI index for the month of March, where expectations show that the index will rise to 55.0 from the previous 51.9. the Canadian economy and sectors are directly affected by any improvement noted at the same sector in the U.S. where the manufacturing, housing and services sectors in the U.S. have rebounded and seem to be seeking stability in conditions thus due to the strong ties in both economies, the Canadian economy will follow its peer to recover from the worst financial crisis since WWII throughout this year before it reaches its long term growth potentials by the second half of 2011, as noted by Bank of Canada.