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Fed Poised for First 2025 Rate Cut as Weak Jobs Data Outweigh Inflation Concerns

  The Federal Reserve seal at its Washington, D.C. headquarters, where policymakers are set to decide on the first interest rate cut of 2025. The U.S. Federal Reserve is expected to lower its benchmark interest rate by 25 basis points today, marking its first rate cut of 2025 and the first since December last year. The move would bring the federal funds target range down to 4.00%–4.25%, as policymakers respond to slowing job growth and rising unemployment, even as inflation remains above the Fed’s 2% target. Recent labor market data showed just 22,000 jobs added in August, with earlier months revised downward, while the unemployment rate has climbed to around 4.3%. Inflation, measured by the Fed’s preferred PCE index, has edged higher in recent months, partly due to tariffs pushing up consumer prices. Markets have largely priced in the cut, with investors watching the Fed’s updated “dot plot” for clues on whether more reductions will follow in October and December. The decision ...
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Why the U.S. economy outperforms Canada's: A guide for investors

 

If you are looking for a stable and prosperous market to invest in, you might want to consider the U.S. economy over Canada's. Despite the challenges posed by the covid-19 pandemic, the U.S. economy has shown remarkable resilience and growth, while Canada's economy has lagged behind and faced several headwinds. Here are some of the key factors that explain why the U.S. economy is in much better shape than Canada's.

1. GDP growth: The U.S. economy grew by 6.5% in the second quarter of 2023, surpassing expectations and marking the fastest pace since 2003. In contrast, Canada's economy contracted by 0.3% in the same period, the second consecutive quarter of negative growth, indicating a technical recession. The U.S. economy has recovered all the output lost during the pandemic, while Canada's economy is still 2% below its pre-pandemic level.

2. Fiscal stimulus: The U.S. government has enacted several rounds of fiscal stimulus to support the economy during the crisis, totaling about 25% of GDP. These measures have boosted consumer spending, business investment, and job creation. On the other hand, Canada's fiscal stimulus has been more modest, at about 17% of GDP, and has been less effective in stimulating demand and growth.

3. Monetary policy: The U.S. Federal Reserve has maintained an accommodative monetary policy stance, keeping interest rates near zero and buying $120 billion of bonds per month. This has helped lower borrowing costs and support credit markets. The Fed has also signaled that it will not raise rates until inflation is moderately above 2% for some time and the labor market is fully recovered. Meanwhile, the Bank of Canada has been more hawkish, tapering its bond purchases from $4 billion to $2 billion per week and hinting at a possible rate hike in late 2023 or early 2024. This has put upward pressure on the Canadian dollar and made Canadian exports less competitive.

4. Trade relations: The U.S. has improved its trade relations with its allies and partners under the Biden administration, rejoining the Paris climate agreement, the World Health Organization, and the Trans-Pacific Partnership. This has enhanced the U.S.'s global leadership and influence, as well as opened new opportunities for trade and investment. On the other hand, Canada has faced some trade disputes with its major trading partners, such as China, Saudi Arabia, and India, over issues such as human rights, security, and agriculture. This has reduced Canada's access to some lucrative markets and increased its reliance on the U.S.

These are some of the reasons why investors should take note of the U.S. economy's superior performance over Canada's. The U.S. economy offers more stability, growth potential, and diversification than Canada's economy, which is more vulnerable to external shocks and domestic challenges.

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