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The media and analysts often point to the resilience of the global economy, with the U.S. as a stand-out on that narrative.
Pushing the boundaries a bit, let’s explore whether the U.S. has tripped over the boundary of economic resilience and moved into exceptionalism.
This requires some permanent defiance of economic laws and carries a different implication for the policy path. It would see a deceleration of inflation absent economic pain.
Last month, Federal Reserve Chair Powell said strong economic growth is not a problem, as long as inflation continues to unwind. This challenges even the notion of a ‘soft’ landing. Are we in a world of a no-landing glide path? If so, how sustainable could it be?
And then there’s the Bank of Canada, caught in the opposite world of a deteriorating economy and a slow deceleration in inflation, perhaps bringing to mind more of a classic stagflation scenario. The January CPI data delivered a welcomed downside surprise, but one month does not make a trend. And it’s not going to be enough to prompt the Bank of Canada to leap into lowering the policy rate to resuscitate the broader economy.
My main concern is how long will the Bank of Canada stay boxed in by high shelter costs that prevent the right-fitting of monetary policy to the performance of the rest of the economy?
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