Examining the Future Monetary Policy in Canada and the United States

Issues Related to Current and Future Monetary Policy in Canada and the United States
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Table of ContentsRisks to the inflation outlook1Interest rate announcement by the Bank of Canada8Exploring the effects of American data releases and Monetary Policy9Release of the consumer price index……………………….…………………………….......9Yield Curve ………………………………………………………………………………...11How to calculate index changes…….……………………………………………………....11Exchange rate table……………………….…………………………………………………11Index calculation table………………………………………………………………………12Consumer Price Index……………………………...……………………………………….12CPI graph13Yield Curve Figures……………………………………………………………………...…14 References…………………………………………………………….……………………15
Issues Related to Current and Future Monetary Policy in Canada and the United States
Risks to the Inflation Outlook
The uncertainties surrounding economic forecasting make it difficult to implement the suggested fiscal laws. Uncertainty regarding the implications of acting on something that humans value, with a concentration on negative, unwanted outcomes, is known as risk. The uncertainties surrounding the monetary policy report projection are usually high. There are downside risks like the upcoming variants of the coronavirus, but I would say with proper mitigation of the potential risks, the economy of the country can easily be managed well.
At the time of preparing the fiscal policy, the bank evaluates all economic risks, the likelihood that these risks will come to a realization, and the possible repercussions of a blunder. The Bank of Canada aims at discovering significant issues faced by the economy in any path as well as assess how the fiscal laws will respond in the realization of the risks. For the bank to restore the inflation to the expected target, flexibility should be adopted due to the nature of the shock facing the economy. Several risks are associated with the monetary policy report. They are explained below.
Severe Pangs of Coronavirus
There are two viable options in the persistence of covid 19 that keep life endangered; the first is recurring outbreaks of infection, compelling the governments to switch back and forth between enforcing and withdrawing containment measures. Secondly, a no corona scenario by use of strict and long-term confinement procedures with the integration of meticulous tracing and testing should be used to maintain a low infection rate. Although continued containment measures would be costly economic-wise, it would be more costly than to have a sick nation.
Whereby so many people are infected with covid 19, more resources will be used for healthcare and the productivity of those people will be down.
In the case of a more severe coronavirus pandemic, the monetary policy's goal is to provide economic liquidity in the event of a crisis. The consequences of the third wave will be more intense if the adaptation used in the previous stages of the pandemic and the increased number of individuals immunized had not occurred. In addition to this, continuous macroeconomic additional help and stronger commodity prices will help the country shield from the economic implications of the corona virus.
Changes in Household Expenditure
Covid 19 has had a significant implication on finance management in Canadian households. After the pandemic struck, there has been a huge job loss across the country and this has taught each individual a thing or two CITATION Joh19 \l 1033 (Keynes & Press, 2019). A large number of Canadian families made savings in the year 2020 because first and foremost because of the containment measures put in place. Citizens could not spend their money on stuff like entertainment and travel. Secondly, people are People are becoming more conscious of their financial and health situations due to the uncertainty of life.
Contrary to the monetary policy report expectations, people are keeping their extra cash as savings, paying off their debts, or making investments in capital assets. Rather than doing all this, the April monetary policy report suggests that these households should spend some of their surplus savings on goods and services. This will go a long way in averting the current economic implications of covid 19 like inflation. In the event where Canadian households spend more of their cash, the harsh effects of inflation are likely to be reversed.
Strong economic growth in the United States of America
Canada is the biggest supplier of oil imports and gas to the United States and this makes them the greatest trade partners to each other. This simply means that the stability of these two countries sustains the labor market of each one of them incredibly. Exports of goods are likely to increase as global demand improves and prices for a variety of commodities rise. The recovery in US industrial activity will stimulate demand for Canadian machinery and equipment exports along with non-energy commodities. If consumers invest some of their additional savings accumulated during the pandemic, the US economy may grow rapidly. Since there is a coronavirus vaccination, the citizens of the USA may start spending more causing people to reduce or stop saving. This will help increase the need for Canadian goods in the states hence healing the economy.
In the event where the United States of America grows stronger, the Canadian government should involve the American government in increased trade deals to ensure that they also benefit from the longtime friend in job creation and economic stabilization.
Cost Hikes and Pressures
As coronavirus continues to hit, the cost of production and distribution of products has significantly increased due to the containment measures put in place by the Canadian government to counter the pandemic. The prices of some consumer goods could relatively go up due to scarcity in the supply chain of those commodities due to a manufacturing halt CITATION Joh19 \l 1033 (Keynes & Press, 2019). The prices of other commodities are likely to go down as the sellers try to sustain selling as well as cut stockpiles.
A good way for the Canadian government to avoid price spikes on primary consumer goods like food and medicine is to introduce programs whereby the government provides the essential needs to the most vulnerable citizens. Additionally, the government can ensure production of essential goods is reallocated to ensure a continuous supply.
Better potential output in Canada
Considering the complexity of disruption and the high level of uncertainties, the potential output may be even higher than previously estimated. Although the sector of oil and gas is surrounded by uncertainty about the prices, in the coming future investments in this sector are expected to go up shortly. This explains the reason why the prices of gas and oils have gone up. Customers now tend to shift towards online buying, pushing the business owners to invest more in equipment that will increase online sales. Due to these online markets, a reduced need of the business owners to put up physical shops is expected.
The economy's potential has gotten better than projected as a result of several variables, including the economy's increased resilience to limits and health care standards, speedier than projected pharmaceutical breakthroughs, higher budgetary expenditures in Canada, and much more. Businesses are best equipped to respond to health care regulations in previous months, based on higher than predicted gross domestic product (GDP) CITATION Uni20 \l 1033 (United Nations, 2020). Containment effects associated with the pandemics have a significant impact on the expansion of output in Canada. There should be a rise in the economy of Canada to compensate for the deficits provided by the coronavirus pandemic.
To ensure that Canada can produce more is by creating job opportunities. So many jobs were lost since coronavirus to take care of the production deficit the government should find a way of solving the problem. The government should find a solution to allow immigrants into Canada to help heal the ailing economy back to normal.
Weakened Exportation
With a weak export portfolio, it can only mean one thing for the Canadian government, that the import portfolio will be stronger. The degree to which the job market has been damaged through this coronavirus era is large, and the status of jobs in the future is largely uncertain CITATION Uni20 \l 1033 (United Nations, 2020). The exporter portfolio will only get worse if we become less competitive, which implies the profile of investments will also be worse. A high inflation level in a country affects the interest rates. Inflation affects the value of the currency in a country hence altering exchange rates.
Exports are boosted by a weakened native currency, while importation becomes pricier and vice versa is true. Therefore since the Canadian currency is expected to become stronger shortly, the exports are likely to become scarce due to the cost with the imports increasing. Currency fluctuations have a significant impact on the trade excess or deficiencies in a country CITATION Int20 \l 1033 (International Monetary Fund., 2020). When exports are low, there are fewer consumers of the Canadian commodities translating into less output in the country CITATION Uni20 \l 1033 (United Nations, 2020). If weakened exportation happens, the government should ensure to support production to create more goods to sell in other countries.
Since the release of the report in April, there has been a tremendous increase in the number of coronavirus infections around the world. Additionally, there has bee...