Bank of Canada keeps rate

The Bank of Canada has wisely decided not raise the bank rate.In its next decision due in six weeks it may well decide that the slow down in the economy is sufficient to drop the rate. The spot market in oil is dropping off some 11 dollars from its peak, the US housing market is rapidly slowing and there is no sign of serious price inflation anywhere in the economy apart from the knock on effect of higher gas prices from previous oil price rises. If the cease fire holds in the Middle East expect prices to trend lower still. The slowdown in the housing market may well spread further via the backward and forward linkages that are substantial in this sector. Political exigencies should also help to reign in the inflation hawks at the Fed. the yield curve is inverted, long rates are lower than short term ones usually a pretty good indicator of a slowdown.

Some US analysts worry that despite the clearly slowing down US economy, with the housing sector in serious decline labour costs at the current official unemployment rate of 4.7 % are still too high and show they claim the sign of continuing "inflation". Some economists perhaps the majority believe this rate is full employmwent. Others would argue you could drive unemployment even lower, say to 3.9 % without risk of serious inflation. There may well be shortages of labour in certain sectors but overall real wages have not risen over the past few years and the future months will likely see higher unemployment as the toll from higher interest rates works its way through the economy.