HIGHLIGHTS OF THE WEEK – Dec. 3/12
• This week the rollercoaster of political negotiations over spending cuts and tax increases between the Obama administration and Republicans in the House started to gain momentum.
• The White House presented a proposal that included $1.6 trillion in tax increases and $400 billion in spending cuts over the next decade, as well as $50 billion in new stimulus. Republicans would only be agreeable to a plan tilted more heavily towards spending cuts.
• This disagreement led Republican House Speaker Boehner to claim that there had been no “substantive progress” on the negotiations thus far, trimming hopes for an early resolution.
• This week, we learned that the Bank of England has poached the current Governor of the Bank of Canada. While his absence will surely be felt, the imminent departure is not expected to change the course of monetary policy in Canada.
• In deciding when to change interest rates, domestic and international developments will be closely monitored. Earlier this morning, we learned that the Canadian economy grew by just 0.6% (annualized) in the third quarter. This pace represents a sharp deceleration relative to the prior quarter and the third consecutive quarter of sub-2.0% growth.
• Amid the tepid economic backdrop and the litany of downside global economic risks, the lower for longer interest rate mantra will continue in Canada until the third quarter of 2013. Once rates are lifted, the increases will occur in a gradual, step-wise manner.