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The Bank of Canada today announced that it was raising its overnight lending rate by 25 basis points to 50 basis points. The doubling of the price of money is the first hike in North American by a central bank since the Great Recession ended.
The bank explained:
Will the Federal Reserve soon follow? Don't count on it. Chicago Fed President Charles Evans downplayed the idea in a speech today. According to Bloomberg:
The Fed funds futures market seems to agree. Contracts are priced in anticipation of Fed funds remaining unchanaged at a zero-0.25% target rate through the end of the year.
Another reason for expecting rate hikes in the U.S. to come later rather than sooner comes by way of the rising greenback. AP reports:
Notice that American officials are no longer making statements about how the government supports a stronger dollar. That's because the buck is rising these days for all the wrong reasons: risk aversion. The dollar is still the world's reserve currency, for good or ill, and the world is piling in once more in search of the proverbial safe haven. A higher dollar at the moment is a signal that the world is worried about deflation, debt and slow growth. Those risks aren't new. The only difference is that investors are now demanding a higher risk premium (i.e., lower asset prices) as additional compensation for the potential fallout.
Posted by jp at June 1, 2010 8:26 PM
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