The U.S. Federal Reserve may find it even more tough to raise interest rates as the year wears on if dwindling expectations for growth are any guide.
The response of the dismal scientists to their collective failure to anticipate the global financial crisis has been dispiriting. Economists have refused to set aside their abstruse models, even though these models failed to predict the economic catastrophe. During the boom years, almost all economists applauded Alan Greenspan’s easy money policy. After the bust, the same people continue to deny – in the face of common sense - that the low interest rates of Greenspan’s Federal Reserve were largely responsible for the debt bubble. In short, economics has failed to address its intellectual weaknesses.
The Bank of Canada will almost certainly hold policy steady on Wednesday but nearly half of the banks who do business directly with it predict at least one more rate cut this year.
Euro zone inflation has dipped again and some forecasters are hedging their bets on the policy response by saying the European Central Bank could either cut rates this week or sometime in the next two months.