It is somewhat surprising that the US has concluded trade agreements with the EU and Japan but not Canada, which is one of the largest trading partners of the US. Canada sends about 75% of its exports to its southern neighbor, so it cannot afford a prolonged trade war with the US. President Trump’s sharp rhetoric about annexing Canada and turning it into the 51st state has touched a raw nerve with Canadians and had a major impact on the recent Canadian election.
All eyes on Jackson Hole
The heads of the major central banks have converged for a meeting at Jackson Hole, Wyoming. The star of the show will be Federal Reserve Chair Powell, who will deliver a speech later today. The markets have priced in a rate cut at next month’s Fed meeting and are hoping for some confirmation from Powell.
The Fed must chart a rate path in challenging economic conditions. Inflation is still high, which would support maintaining rates, but the labor market is deteriorating, which supports the case to lower rates and boost economic activity.
What should be the Fed’s priority? There is a split among members, as reflected in the rare split vote at the July meeting. The majority of the FOMC members, which voted to hold rates, judges the upside risk of inflation to be the primary concern, while the two members who voted to lower rates are most concerned by softening employment. The Fed meets next month and is widely expected to deliver its first rate cut since December 2024.
