Fed leaves interest rates on hold

June 28, 2007

The US fed has wisely decided not to increase its key overnight lending rate leaving the rate at 5.25 %. This decision was taken because sluggish conditions continue to plague the US economy and inflation is well under control.
Inflationary expectations are nowhere to be found.

Here in Canada this decision will make it less likely for the Central bank to increase its overnight rate because if it did when the Canadian dollar is already at 94 cents US the dollar would certainly rise further if the Bank increased the key interest rate.this would impose an additional hardship on Canadian manufacturing.

The only overheated area of the Canadian economy is centred in Alberta. Specific policies targeted at Alberta like window guidance that increases   loan restrictions in Alberta or some other local fiscal policy with a strictly regional focus would be a far better alternative to increasing the overall interest rate. I wrote about this in the late 1980s when the country faced similar problems. It may be time to revisit these ideas again.(See Harold Chorney and Bernard Bouska Regionalizing Monetary Policy:Learning from the Japanese Model, Comer papers, edited by John Hotson, 1989)

The Bank of Canada announces its next interest rate decision July 10, 2007.