The Howe on Interest Rate Cuts

I note that 4 of the 9 economists  on the CD Howe’s rather grandiosly titled Monetary Policy Council are supporting a rate cut  by the real folks at the Bank of Canada next week, and two of them (including Ed Carmichael from JP Morgan Chase) even call for a half point cut.

 http://www.cdhowe.org/display.cfm?page=monetaryReleases

The bare majority calling for an unchanged policy rate appear alarmed about inflationary wage increases, indicating that they are not careful readers of this blog.

I’m not sure they are even keen readers of the current economic data which now indicate core inflation at the target rate; and a serious deterioration in the trade balance and current account surplus as the high dollar wallops our exports.  I’ve had occasion to speak to more than a few real as opposed to financial sector business folks over the past little while, and am alarmed to find that they are as alarmed as I am about what a dollar at parity means for production and jobs in sectors exposed to US and Asian competition (not just manufacturing but also travel and tourism, and cultural industries.)

Most of the Howe folks seem to be ignoring signs of a growing credit crunch, and manifestly growing pessimism over the prospects for a US recession.

Given that the US Federal Reserve now seems all but certain to again cut interest rates at their next meeting, the Bank of Canada should, in my view, cut interest rates by a full point to push the dollar well back below parity. I don’t expect that they will do that – but I’ll be surprised if we don’t get a quarter point cut.