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Market Volatility: Stocks Flatten as Powell's Remarks Weigh on Gains

The stock market experienced a turbulent session on Wednesday, ultimately closing near flat after Federal Reserve Chair Jerome Powell's comments on monetary policy and inflation concerns. The S&P 500 ended nearly unchanged , giving back earlier gains as investors digested Powell’s remarks on the Fed’s stance regarding interest rates and economic restraint. Powell reiterated that the central bank remains cautious about inflation, particularly in light of tariff-driven price increases expected over the summer. While the Fed signaled that borrowing costs are likely to decline this year, the pace of future rate cuts appears to be slowing.  Following Powell’s speech, U.S. Treasury yields reversed their earlier declines , influencing market sentiment. The Dow Jones Industrial Average fell 43.83 points (0.10%) , while the Nasdaq Composite managed a slight gain of 23.66 points (0.12%).  Investors also kept a close eye on geopolitical developments, particularly tensions in the Midd...
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Navigating the Hurdle: Bank of Canada’s Dilemma on Rate Cuts

                                     Bank of Canada

The Bank of Canada’s June 5 interest rate call is approaching, and with it comes the tantalizing possibility of a first interest rate cut in over four years. However, there are still hurdles to clear before the central bank can pull the trigger, as one Big Six bank economist argues.

After blockbuster April jobs numbers left markets second-guessing the wisdom of calls for a June rate trim, attention shifted to Canada’s May 21 consumer price index (CPI) report. Many consider this report key to the next rate decision. Bank of Montreal’s chief economist, Douglas Porter, called the backpedaling on a June cut “kneejerk,” acknowledging that the surprise addition of 90,000 new jobs “will give the bank some pause.”

However, Porter is wary of placing too much importance on one “lone” CPI report. He points out that U.S. inflation poses a significant hurdle for the Bank of Canada and rate cuts. Recently, U.S. inflation has accelerated, causing markets to erase almost all Federal Reserve interest rate cuts for 2024, except for possibly one in December. Core prices (excluding food and energy) rose 0.4% from February to March, maintaining an accelerated pace. Measured year-over-year, core prices were up 3.8%, unchanged from the rise in February. The Fed closely tracks core prices because they provide insight into where inflation is headed.

Bank of Montreal expects overall inflation to come in at 0.4% month over month for April, matching last month’s results. Core inflation, excluding food and energy, is projected to rise 0.3% in April from March. Economist Claire Fan at Royal Bank of Canada anticipates some slowing in U.S. inflation, calling for year-over-year core price growth to decelerate to 3.6% from 3.8% in March. However, she emphasizes that it will take more than one softer price report to calm inflation fears.

Looking at U.S. inflation through a wider lens, Derek Holt, an economist at Bank of Nova Scotia, notes that core, month-over-month U.S. inflation is running at a “too hot” four percent annualized.

In summary, while the Bank of Canada contemplates rate cuts, it must navigate the challenge posed by U.S. inflation. The upcoming CPI report will be closely watched, but the broader economic context remains critical for informed decisions.


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