By: Frehiwote Negash –
The U.S Federal Reserve meets eight times a year to discuss the state of the American market and create policy for the economy. The minutes from the latest Federal Reserve meeting were received as dovish from analysts as the Federal Reserve maintained the same position they had in January; no interest rate hikes yet. Wednesday’s Fed minutes revealed that policymakers were concerned about raising interest rates too soon believing that it may shock U.S. economic recovery – A sentiment that was echoed in last month’s meeting.
While the American economy is continuing to grow and showing signs of recovery, the Fed minutes showed that an interest rate hike would be pushed back to at least the second half of this year. Policymakers voted last month not to raise interest rates reflecting hesitation about the hike in the future. The main concern voiced about the hike was when and how they should proceed with it. As little was said about tightening anytime soon, economic data will probably drive their timing. As interest rates and inflation are positively correlated, the minutes also showed concern about the core level of inflation. In addition to how the Fed would proceed with normalization, Fed watchers had been looking at the January meeting to see if the Fed would change its language from December’s minutes regarding terminology suggestive of halting the increase. Nonetheless, market reaction to the minutes was fairly muted. Investors got what they were expecting as the Fed stated it would remain patient and data-dependent. Though many analysts believed the minutes were dovish, the central bank began holding a special policy planning session to discuss the timing of interest rate increases. As for the American economy, many feel that before proceeding with new policy, they need to see further improvements in labor market with continuous growth.
Oil prices have significantly reduced the broad-based investments of Canadians. As oil is one of Canada’s major exports, the more than 50{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} percent reduction in its price has hurt the portfolios of Canadians who have exposure to energy not to mention government coffers. It is for that reason that many investors are fleeing the Canadian market. Foreigners have begun to dump Canadian securities as the Canadian economy continues to be bogged down with low oil prices and a lower Canadian dollar. Surprisingly, Canadian investments in foreign securities have hit a 14-year high. Canada’s international transactions of securities posted a net outflow C$27.43 billion from the economy making it the largest such outflow in more than seven years. This acquisition by Canadian investors in December focused mostly on the U.S. market with record purchases of U.S Treasury Bonds. The reduced attractiveness of domestic securities is attributed to a stronger U.S outlook coupled with the low oil prices. For many Canadians, buying American is the way to go.
Source: WSJ.com, CNBC.com, CTVNews.ca