Insights & Resources

Fed cuts interest rates

Following its two-day monetary policy meeting on September 18, the U.S. Federal Reserve (Fed) cut interest rates by 50 basis points (a basis point is 1/100th of one per cent), moving the target for the federal funds rate to the range of 4.75% to 5.00%. This was the first interest rate cut since March 20, 2020. As can be seen in the accompanying graph, the move came only after the Bank of Canada had initiated its own easing cycle on June 5. The Fed’s switch to an easing policy stance followed cumulative rate hikes totaling 525 basis points between March 16, 2022, and July 26, 2023. This proved to be the most aggressive tightening since interest rates on federal funds rose 1,525 basis points from 4.75% in November 1977 to 20.00% in May 1981. Importantly, updated projections accompanied the statement and revealed lower forecasts for inflation. This leaves the door open for the possibility of another 50-basis-point rate cut at the next policy meeting, scheduled for November 6 and 7. This meeting will take place in the immediate aftermath of the U.S. presidential election, slated for November 5. While it is unclear what interest rate the Fed currently believes is ‘neutral’ (where monetary policy neither stimulates nor restricts economic growth), the market will begin to weigh the likelihood of another large move at that juncture.

Canadian productivity continues to decline

Statistics Canada reported that labour productivity of Canadian businesses fell 0.2% in the second quarter of 2024, as hours worked rose more than business output. This is now the 15th decline in productivity over the last 16 quarters and Canadian productivity has now fallen to its lowest level since the final quarter of 2017. Canada’s productivity growth is important for longer term economic stability as it reflects the country’s competitiveness. Not surprisingly, the new figures compare very poorly with the United States where productivity gains have been consistent for the past several years and a new all-time high was recorded in the second quarter of 2024. This new high represents an 11.6% advance when compared to the fourth quarter of 2017. Rising productivity allows for higher wages, faster economic growth without inflationary pressures and an improving standard of living.

Longer View

As the demand for AI-powered technologies continues to surge, the companies fueling this transformation are set to experience significant growth in both impact and valuation. This presents a remarkable $15-20 trillion investment opportunity for those who recognize the potential early. The era of AI is just beginning, and the organizations that lead in its development and application will shape the future across industries, redefining innovation and economic value worldwide.

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