tumbled as a result<\/a>. The S&P 500 fell close to 3% and the S&P\/TSX Composite Index dropped more than 2%. The U.S. benchmark was flat today, while the TSX dropped another 143 points.<\/p>\n\u201c[It was] a little bit of an overreaction,” Michael Gregory, deputy chief economist at BMO Capital Markets said in an interview. \u201cNow we have to wait and see what happens.\u201d<\/p>\n
The loonie rose in value today, but remained below 70 cents US. It\u2019s at a low not seen since 2016.<\/p>\n
\u201cThe Canadian dollar will continue to drift weaker,\u201d Gregory said. \u201cWe do think that the Fed and the Bank of Canada are both likely to cut interest rates in March, so we’re in a bit of a holding period.\u201d<\/p>\n
Our dollar is down close to 8% this year, relative to the greenback. Like the Fed, the Bank of Canada has signalled its intention to slow down the pace of rate cuts in the new year.<\/p>\n
While the U.S. dollar has strengthened since Donald Trump won the presidential election, his incoming administration\u2019s tariff threats present significant risk on both sides of the border. It could help explain the Fed\u2019s cautious approach, Gregory said.<\/p>\n
\u201cThere’s much more uncertainty,\u201d he said. \u201cYou have no clue what’s going to happen in the next three, six or nine months. Will there be tariffs? Will there be a huge run-up in the deficit? As a result, you\u2019ve got to be a little bit more cautious.\u201d<\/p>\n
In a note to investors, TD Economics director & senior economist James Orlando wrote that this more careful approach is likely to continue in the new year. \u201cWith the Fed’s preferred inflation rate stuck at 2.8% year-on-year, and expectations that President Trump will follow through on his inflationary political strategy, it makes sense that the Fed will be much more cautious come the New Year.\u201d<\/p>\n
TD has not ruled out a January rate cut in the U.S., however. Neither has RBC Economics.<\/p>\n
\u201cPowell continued to push back against discussing the impact of potential tariffs, referencing high levels of uncertainties with regard to the shape and form the policies could take on,\u201d wrote Claire Fan, an economist at RBC Economics, in her own note.<\/p>\n
Powell was asked during his press conference if the Fed will have to respond more rapidly to the potential impact of tariffs on U.S. inflation. \u201cThere are many factors that can go into determining how tariffs can impact inflation,\u201d he said. \u201cIt’s very premature to conclude. We don’t know what tariffs, for how long, how broadly, whether there will be retaliation and what pass throughs into inflation may occur.\u201d<\/p>\n
Derek Holt, vice-president and head of capital markets economics at Scotiabank, wrote to investors that: \u201cData is showing more resilient pressures against central bank policy goals and the incoming U.S. administration poses high risk to the outlook that is making central bankers \u2014 and markets \u2014 considerably more nervous… I thought Powell\u2019s responses were one part reasonable, one part highly political.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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