Inflation rate stays negative October 18, 2009
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Canada’s annual inflation rate stayed well below zero for the fourth consecutive month in September, dropping to ?0.9 per cent.
The consumer price index slid by one-tenth of a point last month to ?0.9 per cent ? matching a 53-year low that was also recorded in July, Statistics Canada reported Friday.
Province Annual rate in Sept. Annual rate in Aug.
N.L. -0.9 -0.7
P.E.I.
-1.4 -0.8
N.S. -0.8 -0.8
N.B. -0.4 -0.2
Que. -0.3 0.4
Ont. -1.1 -1
Man. -0.3 -0.4
Sask. 0.2 0.8
B.C. -1.2 -1.1
Whitehorse, Yukon -1 -1
Yellowknife, N.W.T. -0.7 -0.5
Iqaluit, Nunavut 1.2 1.6
Alta. -1.1 -1.7
On a month-to-month, seasonally adjusted basis, there was a 0.1 per cent increase in the consumer price index. The seasonally adjusted monthly CPI has gone up in four of the past five months.
As has been the case for the better part of a year, it was the disparity in gasoline prices between last year and this year that was the main contributor to the negative inflation rate.
The cost of filling up at the pump was 23 per cent less in September than 12 months earlier. This came after a similar 21.2 per cent drop in August.
But the gap is certain to close in the next inflation report because it was at about this time last year that gasoline prices began falling in response to recessionary forces and the collapse in global oil demand.
“There are no major surprises here,” BMO economist Doug Porter wrote in a research note on Friday. “This is likely the low-water mark for inflation, as the steep slide in pump prices late last year will soon fall out of the calculation, and headline inflation is poised to move back into positive terrain possibly by next month.”
Much lower gasoline prices have been a major drag on Canada’s inflation rate, Statistics Canada says.(Canadian Press)
Diana Petrmala, an economist with the TD Bank, said the stronger Canadian dollar will likely further keep prices from rising.
“Given that soft domestic demand is forcing retailers to aggressively offer incentives to attract buyers,” she said, “the pass-through of lower imported costs to consumer prices could be greater and more rapid.”
No other component of the consumer price index has been as critical in suppressing inflationary pressures as energy, the agency noted.
Excluding the effect of energy prices, the annual inflation in Canada was well above zero in September at 1.3 per cent.
Falling costs
The low inflation rate was also influenced by the falling cost of autos, shelter and transportation.
Canadians paid 5.9 per cent less for purchasing autos last month than a year ago, while shelter costs were 1.8 per cent lower and transportation costs fell 7.2 per cent.
But of the eight major components Statistics Canada uses to gauge inflation, five were in positive territory, including food, household operations, health and personal care, recreation and education, and alcohol and tobacco.
Food prices main force
Food prices continued to be the main driver of inflation with a 2.8 per cent annual gain last month, although that is less than the four per cent increase registered in August. The biggest increases came in the price for fish, which rose 8.8 per cent, and for sugar and confectionery, up 8.7 per cent.
There were also price increases of 2.2 per cent in household operations, furnishings and equipment, a 3.9 per cent spike in health and personal care costs, and a 1.1 per cent increase for recreation, education and reading.
The report is unlikely to cause any worries to the Bank of Canada that inflation will be a problem in the near future.
The core inflation index, which excludes volatile items such as gasoline, slipped to 1.5 per cent in September, below the central bank’s target of 2.0 per cent. In August, the rate had been 1.6 per cent.
The core rate is the one that the Bank of Canada pays most attention to in making its policy decisions.
Among provinces, only Saskatchewan recorded positive inflation in September. In Nunavut, the inflation rate was 1.2 per cent, down from 1.6 per cent in the previous month.
The greatest decline came in Prince Edward Island, which fell 1.4 per cent.
With files from The Canadian Press (more…)
2.5% bank rate by 2011: economist October 13, 2009
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The Bank of Canada will push its benchmark interest rate to 2.5 per cent in the next year and a half, an economist with the Central 1 Credit Union predicted Friday.
Central 1 Credit Union is the umbrella organization for the credit union systems in British Columbia and Ontario.
The central bank rate is now at 0.25 per cent and the bank has said it will likely stay there until the spring of 2010. Helmut Pastrick, chief economist with Central 1, told CBC News the recovery remains on track, with only occasional data suggesting a setback.
Helmut Pastrick predicts the central bank will be anxious to move away from rates near zero once recovery is underway.(CBC)
He looked at gains in U.S. housing, manufacturing and government stimulus and predicted the next report on U.S. gross domestic product will show the American economy started growing again this fall, perhaps by as much as four per cent, for the first time in more than a year.
“The general direction of the North American economy is on an improving trend,” Pastrick said. “We can certainly expect industrial production in the U.S. and in Canada to continue to increase in September and October.
“Certainly the Cash for Clunkers program has had a substantial impact, albeit temporary, on car sales but manufacturers now will be in the process of rebuilding their production to help restock new-car dealer inventories.”
Pastrick’s prediction came one day after the chair of the U.S. Federal Reserve, Ben Bernanke, said again he was in no hurry to start increasing interest rates. He expected the rate would stay at present levels for an “extended period,” Bernanke said in a speech in Washington.
The Canadian dollar rose after those remarks, to close up .71 of a cent at 95.75 cents US Friday.
Australia’s central bank surprised everyone on Oct. 10 when it became the first G20 country to raise rates.
Much of the growth will have been the result of government stimulus, especially low interest rates, Pastrick admitted but predicted the private sector would jump in with increased investment and job creation.
“Over time, the private sector begins to take the main role in economic growth and that should play out this time as well. However, it appears that it’ll be more of a longer drawn process, particularly in the U.S. since there’s still some ongoing problems in credit markets,” he said.
Bank of Canada anxious about low rates
Once the recovery is underway, he said, the central bank will be anxious to move away from rates near zero. Pastrick predicted the bank will likely raise rates by half a percentage point at a time perhaps three times through the fall-to-spring period from 2010 to 2011.
“That would allow them some room to cut rates at some future point should the economic recovery falter.”
One wild card would be the sudden rise in the Canadian dollar against the U.S. currency.
“Should the dollar continue to appreciate further, then growth would be restrained and the Bank of Canada’s first move, or move towards rate normalization, would be delayed, he said. “It may not occur perhaps until sometime in 2011.”
U.S. jobless rate highest since ‘83 September 8, 2009
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Susan Bredeken, right, talks with Wendy Morisi about employment opportunities at a U.S. army job fair Thursday, in Romulus, Mich.(Paul Sancya/Associated Press) U.S. unemployment hit a 26-year high in August as 216,000 Americans were added to the unemployment rolls, according to figures released Friday.
The U.S. jobless rate inched up to 9.7 per cent in August, a rise of three-tenths of a percentage point from July’s 9.4 per cent, the U.S. Department of Labour reported Friday.
That meant that August’s unemployment was at its highest level since June 1983, when more than 10 per cent of Americans who wanted to work could not find employment.
Recession woes
The U.S. economy has been hammered by the global economic slowdown in recent months.
Since the summer of 2008, American property values have plunged, destroying individual net worth and killing consumer spending. In addition, the curtailment of activity in international lending market left U.S. firms without available cash to fund operations while waiting for the return of buyers.
The U.S. unemployment rate in August was the worst in 26 years.(Jae C. Hong/ Associated Press)
These events conspired to put 14.9 million U.S. workers on the unemployment rolls by August, the largest number of Americans unemployed since 1948, the earliest public records at the Department of Labour.
Still some improvement
Despite the employment losses, the U.S. civilian workforce expanded in August, at 154.6 million people, an increase of 73,000 men and women seeking jobs.
Often, economists point to a rising workforce as sign of economic optimism, although using such data as evidence of a recovery in the midst of the worst recession in decades might be considered a stretch.
“The job losses are slowing in typical lagged fashion as the economy emerges from recession. But they remain large, and joblessness continues to mount, which can only make it harder for households to repay debt and rebuild savings, thereby impeding a consumer-led recovery,” said Bank of Montreal economist Sal Guatieri in a morning note on the U.S. figures.
As an example, analysts viewed the August number of U.S. jobs as positive since the employment losses were about 9,000 fewer than expected.
Still, economists only missed their job loss forecast by a marginal four per cent, an indication that the U.S. upside surprise in the jobs picture was not that great.
In addition, American manufacturers, which employ about 12 million people, cut another 63,000 jobs in August compared to July. The goods-producing sector in the United States, similarly to other industrialized countries, has been losing jobs for years.
In fact, U.S. manufacturing industries have chopped 5.5 million jobs, or more than 30 per cent of their workforces, since the decade began.
Maritime inflation rate drops below zero June 22, 2009
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While Canada’s inflation rate was almost down to zero in May, the rate in the Maritimes actually dipped below it.
Inflation rates
P.E.I.: –1.1%N.S.: –1.1%N.B.: –0.2%Alberta: –0.7%
Statistics Canada says inflation stood at 0.1 per cent across Canada, while all three Maritime provinces and Alberta posted negative rates. P.E.I. and Nova Scotia posted the lowest rates at –1.1 per cent.
Those four provinces also posted negative rates in April, but Nova Scotia and P.E.I. saw significant drops, from 0.3 per cent in P.E.I. and 0.4 per cent in Nova Scotia.
The inflation rate hasn’t been this low in Canada since 1994.
8% jobless rate ‘not good news,’ but not unexpected, Harper says April 10, 2009
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Canada’s employment rate hitting a seven-year high of eight per cent and the economy shedding another 61,300 full-time jobs in March, was not unexpected, Prime Minister Stephen Harper said Thursday in Edmonton.
“This is the kind of level of unemployment we were expecting in the budget. That’s why we’ve come forward with the kinds of programs and ? the amount of dollars we have to deal with this ? during this and the next fiscal year,” said Harper, responding to new job data released by Statistics Canada Thursday.
He was speaking at a press conference at the Northern Alberta Institute of Technology, where he reannounced $2,000 bonuses for people who complete apprentice training, outlined in the January budget.
“Obviously, we’re never very happy about unemployment. All of these increases are causing real hardship to Canadian families. At the same time, we do have good social safety nets and we do have good systems of retraining that we are enhancing.”
Harper reminded reporters that Canada is relatively better off than the United States where he said five million jobs have been lost since the start of this recession last fall.
“That’s what’s pulling us down and we have to see that get turned around,” he said.
He also highlighted his government’s move to increase the employment insurance benefit period by five weeks and hire more workers to process the backlog of EI claims.
Statistics Canada employment chart
Statistics Canada said a total of 79,500 full-time jobs disappeared in March, while employment in part-time work grew by 18,200.
Economists had a consensus projection that the country would lose a total of about 55,000 jobs last month, although some of the forecasts expected a loss of more than 90,000 positions.
Since hitting its most recent peak in October 2008, employment across the country has fallen each month, with net losses totalling 357,000. Statistics Canada said that, in percentage terms, this is the largest decline over a five-month period since the 1982 recession.
Since October, full-time employment has declined by 387,000, while part-time numbers have edged up by 30,000.
The largest declines in employment were seen in British Columbia, which lost 23,000 jobs; Alberta, where 15,000 positions were shed; and Ontario, which lost another 11,000 jobs. The three provinces have the fastest rate of employment decreases since October.
Jobs losses were widespread throughout the economy, with losses in manufacturing, finance, insurance, real estate and leasing, construction and natural resources.
Employment in the manufacturing sector dropped 34,000 in March, bringing the sector’s total losses since October to 134,000, or a drop of 6.8 per cent. Manufacturing has lost the most workers of the major industry groups, Statistics Canada said.
The finance, insurance, real estate and leasing sector lost 20,000 jobs in March. The construction sector had 18,000 fewer workers last month ? the third notable drop in four months ? bringing total job losses since October to 99,000.
‘Deep in the heart of the recession’
Employment in natural resources declined 11,000 in March, led by losses in Alberta, mostly in mining, oil and gas extraction.
“While not quite as horrid as the two prior months, this report leaves little doubt that we remain deep in the heart of the recession, despite some mildly encouraging results on other fronts in recent weeks,” said BMO Nesbitt Burns economist Douglas Porter.
“For a change, there really were no major surprises in the details, and the results are fully consistent with the setbacks seen south of the border. The good news ? such as it is ? is that the job losses are not accelerating, and may even be starting to lighten,” Porter said in a commentary.
Another economist suggested there is still plenty of pain ahead on the employment front.
“With employment having contracted 272,000 in the first three months of 2009, we regard this only to be around the half-way mark for 2009 job losses, which we estimate will total over 520,000,” said TD Bank economist Grant Bishop.
“We still expect losses, albeit at a slower pace, through the next three quarters, anticipating the unemployment rate will rise to 10 per cent by year?s end. There is still much pain ahead and, along with the hard-hit export sector, job losses have now infected domestic sectors.”
February jobless rate rises to 7.7% March 15, 2009
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February jobless rate rises to 7.7% (CBC)
Canada’s unemployment rate rose to 7.7 per cent in February, when 82,600 jobs were lost, the fourth consecutive month of declines.
The February drop pushed the national unemployment rate up half a percentage point, from 7.2 per cent in January, Statistics Canada reported Friday. The jobless rate has not been this high since it was eight per cent back in August 2003.
Economists had been expecting February jobs losses to come in around 55,000, and for the overall unemployment to rise to 7.4 per cent.
All the February employment losses were in full-time work, with 110,900 jobs disappearing, while part-time employment edged up slightly.
Since the peak last October, 295,000 jobs in the country have been lost as the economy fell into recession. In January, there were 129,000 job losses.
In February, the largest decline in employment occurred in Ontario, which lost 35,300 jobs, followed by Alberta, where 23,700 jobs vanished, and Quebec with 18,400 jobs lost.
Speaking at Fanshawe College in London, Ont., where he was announcing funding for labour initiatives, Prime Minister Stephen Harper called the job losses “unfortunate.”
However, he repeated his recent message that he believes the Canadian economy will get out of the recession before other countries. Harper also predicted that Canada will experience a labour shortage when the economy resumes growing.
Finance Minister Jim Flaherty said he was not surprised by the latest jobless figures.
Vanishing construction jobs
“The overall numbers are not going to be good for some time, even though they’ll be better than they would have been because of the economic stimulus,” he said from England, where he is attending a meeting of world finance ministers.
The construction sector lost 43,200 jobs last month, accounting for over half the decline in overall employment.
Job losses were also in professional, scientific and technical services, with 31,100 jobs cut. The trade sector lost 17,700 jobs, while employment in educational services fell by 14,700.
The battered manufacturing sector actually added 24,700 jobs last month, but employment in that sector is down by more than 104,000 from February 2008.
Agriculture was the only other sector to add jobs last month, as employment rose by 16,700.
Deeper pessimism
Some economists predict further job losses.
“February?s numbers confirm our pessimistic outlook for Canadian employment,” said TD Bank economist Grant Bishop. “We believe that we?re only at the half-way mark for the total job losses over this recession, and forecast the national unemployment rate will rise to 10 per cent by year-end.”
BMO Capital Markets economist Douglas Porter said Canada has now lost 295,000 jobs from the peak level reached just last October, or 1.7 per cent in the brief span of four months. The United States is down 3.2 per cent from its peak employment level in December 2007.
Canada will likely continue to catch up to the U.S. drop, “as previously robust sectors are vulnerable to further serious job losses, most notably construction,” Porter said. “While today?s results are not wildly out of bounds versus consensus, they loudly confirm that Canada is in the heart of a recession which is quickly rivalling that of the early 1990s and early 1980s.”
In the recession of the early 1980s, Canadian unemployment peaked at 12.9 per cent, while in the early 1990s economic decline, the jobless rate rose to a peak of 12.1 per cent.
Hot topic in House of Commons
The sinking economy was the hot topic in question period in Ottawa on Friday.
“A staggering 83,000 Canadians lost their jobs in February,” long-serving Liberal MP Ralph Goodale said. “Canada’s job loss rate is now twice as bad as that in the United States. When will the prime minister acknowledge that the economy, on his watch, has tanked?”
Conservative MP and president of Treasury Board Vic Toews said the government sympathizes with Canadians who have lost their jobs but suggested the situation would be much worse had Canadians voted for the carbon tax plan the Liberals championed during the last federal election.
Toews added the government’s recently passed budget and stimulus bill will help the economy rebound.
“The fact is that the benefits would have filtered out earlier had the Liberal part not played games and delayed passage of the federal budget,” Toews said.
Bank of Canada cuts key borrowing rate again March 5, 2009
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The Bank of Canada cut a key interest rate on Tuesday, dropping its target for the overnight rate by one-half of a percentage point to 0.5 per cent.
The rate cut had been widely forecast by economists. The bank has now reduced interest rates by four percentage points since it commenced the latest cycle of easing in December 2007.
The rate cut comes one day after Statistics Canada said the economy contracted at an annualized rate of 3.4 per cent in the last three months of 2008. The Bank of Canada had been projecting a 2.3 per cent rate of decline.
Monday’s negative report left economists predicting a weaker first quarter this year, with annualized declines of five to six per cent forecast.
In its Jan. 22 update to its outlook on the Canadian economy, the Bank of Canada said real gross domestic product for 2009 is projected to decline by 1.2 per cent, followed by a rebound of 3.8 per cent in 2010.
Many critics charged the central bank’s forecast was overly optimistic, but Bank of Canada governor Mark Carney has defended the outlook vigorously.
In the commentary accompanying Tuesday’s rate decision, the central bank said data for the fourth quarter of 2008 and other indicators point “to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January.”
Other measures considered
With the target for the overnight rate approaching zero, the bank also said Tuesday it is considering other measures to bolster the weak economy.
“Given the low level of the target for the overnight rate, the bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing,” the bank said, adding that it would provide more details in its April monetary policy report.
That could turn the central bank into a buyer on credit markets in a bid to make corporate debt cheaper.
“Today’s bold statement highlights [the] bank’s nervousness that the typical policy tools will not be sufficient to put the economy back on a solid growth path,” said RBC assistant chief economist Dawn Desjardins.
“The inclusion of the reference to quantitative and credit easing indicates that the bank is keeping its options open as it works to nurse the economy back to health and that policymakers here are ready to follow the lead of the United States, the United Kingdom and others in moving to more innovative ways to attack the problems,” Desjardins said.
The move by the central bank to lower lending costs was quickly followed by several of the country’s big chartered banks, as they cut their prime rates by one-half of a percentage to 2.5 per cent.
Bank of Canada cuts lending rate to record low of 1% January 21, 2009
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The Bank of Canada on Tuesday cut borrowing costs to a record low as it warned the economy will shrink this year.
In a further move to bolster the sagging economy, the bank reduced its key overnight rate by half a percentage point to one per cent. The bank has now trimmed 3.5 percentage points from the overnight rate since it started its latest cycle of cuts.
Tuesday’s cut reduced borrowing costs below 1.12 per cent, which had been the lowest point set back in 1958.
More rate reductions may also be in the offing, as the Bank of Canada said more stimulus could be needed to boost the sagging economy.
“Major advanced economies, including Canada’s, are now in recession and emerging-market economies are increasingly affected,” the bank said.
“Canadian exports are down sharply, and domestic demand is shrinking as a result of declines in real income, household wealth, and consumer and business confidence.”
Bank sees recovery in 2010
The Canadian economy is expected to contract by 1.2 per cent in 2009, but the bank sees a recovery in 2010, when the economy is projected to expand by 3.8 per cent.
Back in October, the bank projected growth of 0.6 per cent in 2009, and 3.4 per cent in 2010.
The bank will provide more details on its outlook for the economy on Thursday, when it releases its Monetary Policy Update.
The bank also signalled that inflation fears have abated. The so-called core inflation rate is expected to fall to 1.1 per cent in the fourth quarter of this year, while the overall inflation rate is expected to dip below zero for two quarters in 2009 because of lower energy prices.
“With inflation expectations well-anchored, total and core inflation should return to the two per cent target in the first half of 2011 as the economy returns to potential,” the bank said.
Another cut predicted
Pascal Gauthier, an economist at TD Bank, is expecting the Bank of Canada will cut the overnight rate by another half percentage point to 0.5 per cent on March 3.
“Furthermore, given the considerable amount of remaining uncertainty and the fact that the Canadian recession has just started, the policy rate is expected to stay at this record low well into 2010 before inflation starts registering on the radar again,” Gauthier said.
BMO Capital Markets economist Douglas Porter said that if global financial markets continue to stagger in the coming weeks, the central bank “still has the room and the willingness to cut further as the need arises.”
The major Canadian banks quickly moved to reduce their prime rates to three per cent. That differed from some of the past moves by the Bank Canada, when the big banks either delayed lowering their prime rates or did not pass along the full cut.
The banks cited the tight credit markets for not passing along the cuts to customer borrowing rates.
Canada’s jobless rate rises to 6.6% in December January 12, 2009
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Canada lost 34,400 jobs in December, a figure that was worse than economists had been expecting, as the economy weakened.
Statistics Canada said Friday the big loss was the result of a drop of 70,700 full-time jobs. That was partially offset by a rise in the number of people working part-time.
Minister of Finance Jim Flaherty, seen in Whitby, Ont., on Thursday, told Canadians to expect more job losses in 2009. (Nathan Denette/Canadian Press)
Speaking in Thornhill, Ont., prior to another round of consultations before his Jan. 27 budget, Finance Minister Jim Flaherty said Canada is “in for a very difficult year.”
“We, regrettably, are going to have to expect continuing job losses in Canada,” he told reporters.
Flaherty said he has received many suggestions during his consultations on what to include in his budget on how to help the unemployed, such as retraining and work-sharing.
In advance of the employment report, economists had been expecting a net loss of 20,000 jobs in Canada for the month.
With the decline in employment, the jobless rate rose by 0.3 percentage points to hit 6.6 per cent, the highest since January 2006.
“The jobless rate is now up 0.8 [percentage] points from its March low of 5.8 per cent, a classic early warning signal of the onset of recession,” said BMO Capital Markets economist Douglas Porter.
Weakness in the construction industry was a major factor in the December jobs report, with 44,000 jobs lost in the sector. Statistics Canada said that was one of the largest monthly losses for the industry in more than three decades.
Employment in transportation and warehousing was up 23,000 in December, while employment in other sectors was little changed last month.
Largest job loss in Alberta
The private sector suffered a loss of 59,400 jobs, which was made up somewhat by the addition of roughly 20,500 jobs in the public sector.
Unemployment rates by province (%)Newfoundland and Labrador13.7 Prince Edward Island11.8Nova Scotia8.2 New Brunswick 8.6Quebec 7.3 Ontario 7.2Manitoba4.3 Saskatchewan 4.2 Alberta4.1British Columbia5.3
Employment edged down in most provinces, with Alberta posting the largest loss as it shed about 16,000 jobs. The province’s unemployment rate rose by 0.7 percentage points to 4.1 per cent, but that was still the lowest in the country.
The December losses follow a big drop in November of 71,000 jobs.
CIBC World Markets economist Krishen Rangasamy said the latest job report should let the Bank of Canada push its key overnight lending rate below one per cent sooner rather than later.
“While Canada hasn’t yet seen back-to-back quarterly GDP declines so far this cycle (a common misconception about what defines a recession), we?re well into a recession by other measures that clearly indicate a sustained and significant slowdown in economic activity, including Canada?s flagging labour market,” Rangasamy said in a commentary.
“With forthcoming plant closures and layoffs already announced, it’s clear that the worst is yet to come on the employment front, with the unemployment rate likely to creep up steadily towards eight per cent.”
Markets jump after Fed cuts interest rate to lowest level ever December 18, 2008
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The U.S. Federal Reserve has cut the country’s federal funds interest rate by three-quarters of a percentage point to a target range of zero to 0.25 per cent.
That is the lowest level on record in the United States for the rate, which is the price that banks charge each other for loans. U.S. commercial banks are now expected to lower the prime rate, the key rate for many loans to consumers. It’s currently four per cent.
The cut sparked jumps in stock markets and a drop in the U.S. dollar against other currencies.
In announcing the cut Tuesday, the Fed said U.S. labour and market conditions, consumer spending, business investment and industrial production are all falling.
“Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.”
The economy is so bad that the rock-bottom rate is likely to continue for some time, the central bank said.
It also promised to use “all available tools” to get the U.S. economy moving. As it said previously, it will buy large quantities of debt and mortgage-backed securities to support to the mortgage and housing markets.
It’s also considering buying longer-term bonds to push down long-term interest rates.
Stock markets make move
The Fed move prompted a surge in stock markets. In New York, the Dow Jones industrial average surged 4.2 per cent, gaining 359.61 points to 8,924.14. It had been up less than 100 points before the announcement.
The S&P/TSX composite index rose 3.1 per cent, adding 262.28 points to 8,724.11.
The U.S. dollar fell against other currencies, including the loonie, which closed up 2.02 cents at 83.21 cents US.
While the Fed was worried about inflation earlier this year, those concerns have eased with falling commodity prices and the economy’s weaker prospects.
The U.S. Labour Department reported that inflation in November fell a record 1.7 per cent, the biggest drop since seasonally adjusted statistics were introduced in 1947. The drop in oil prices drove the decline.
Some economists believe the Fed’s cut was affected by the inflation figure, because the prospect of deflation poses a profound threat to the economy.
The Fed cut was announced by its monetary policy committee after a two-day meeting to consider its response to what some are calling the worst U.S. economic conditions since the 1930s.
Many economists believed the Fed would cut interest rates in half on Tuesday to 0.5 per cent to spur the economy, but some wanted a more aggressive 0.75 percentage point cut.
Last week, the Bank of Canada cut its overnight rate by three-quarters of a percentage point, bringing it down to 1.5 per cent, a 50-year low.
