2016-29 Monetary policy in Canada, US and EU

1. In Canada "Bank of Canada Governor Stephen Poloz suggested that continued uncertainties surrounding Canada’s economic outlook have set the bar high for an interest rate change, as the central bank approaches its deliberations for next week’s rate decision."

Next week the Governing Council will be making the policy decision, as we discussed on Monday. The statment by the governor, above, suggests they will not change the interest rate. If anything, they can lower it.

Note that the governor mentions current economic outlook. The actual decision is made on the basis of expectations of inflation (the goal of the Bank) 6-8 quarters into the future (since the monetary policy works with a lag). So the talk about " uncertainties  surrounding Canada's economic outlook" stands in for: given our expectations, in 6-8 quarters inflation will not be a problem.

Note also that: "The speech was the last word from the Bank of Canada Governor prior to the bank’s next interest rate announcement, on Dec. 7. The bank always observes a “blackout” period for one week prior to its rate decisions, when no senior officials at the bank speak publicly."

This means the Bank is careful not to affect the markets ahead of the policy decision

In Brussels "European Central Bank President Mario Draghi issued a blunt warning over the risks that low interest rates [...]

The warning underlines the dearth of policy choices central banks face as they seek to further stimulate their economies after years of aggressive easy-money policies.

Speaking at the European Parliament in Brussels on Monday, Mr. Draghi said a lengthy period of low rates had created “fertile terrain” for financial-market risks, including a buildup of debt and excessive risk-taking."

In Washington "Minutes from the Fed’s November meeting, released Wednesday after the usual three-week lag, indicated officials were looking for signs of an improving economy before increasing rates. Since then, the U.S. has seen a steady stream of robust economic news and a brighter consumer outlook in the wake of Donald Trump’s election.

​With the outcome of the presidential election settled and employment and inflation on the rise, economists and market participants almost overwhelmingly expect the Fed to raise rates in three weeks’ time."

US economy is in good shape and the central bank is expected to increase interest rates. Note that the FED releases the minutes of the meeting three weeks after it has taken place. This is transparency, but a delayed one.