City of Surrey's 2024-2028 Financial Plan

ECONOMIC OVERVIEW

UNITED STATES The US Federal Reserve (“Fed”) kept its benchmark interest rate range at 5.25% - 5.50% for the fifth consecutive meeting in March 2024. Policy makers at the central bank expressed concerns that inflation is still persistently high and not moving substantially towards their 2.0% target. The Fed cautioned that inflation could accelerate again given that Consumer Price Index (“CPI”) readings for the first quarter of this year came in higher than anticipated. US inflation came in at 2.7% in March 2024. Core inflation, which strips out volatile items such as food and various fuels, remains elevated at 2.8%. Recent CPI results were driven mainly by the cost of gasoline and shelter. Higher interest rates have not slowed down US business investments and consumer consumption. The US labor market has remained resilient with the unemployment rate remaining below 4.0% over the last two years. In March, the jobless rate edged lower to 3.8%. The employment gains in the first quarter of 2024 averaged 276,000 per month, compared to the average of 212,000 monthly job gains in the last quarter of the prior year. The average hourly wage increased by 4.1% year-over-year at the end of quarter one. The Fed indicated that lower wage growth in the 3.0% to 3.5% range would help to keep inflation in check. The Fed is monitoring the pace of job and compensation growth for signs of slowing demand. US economic activity slowed in the first quarter of the year with annualized growth in Gross Domestic Product (“GDP”) coming in at 1.6%, below economists’ expectation of 2.4%. The slowing economy shows that the Fed’s monetary policy is working its way through the economy. It is hoped that the deceleration in the economy will eventually lead to lower demand for labour and put downward pressure on wages, helping to rein in consumption. Based on the recent CPI and GDP announcements, analysts are readjusting their expectations on the timing and frequency of Fed interest rate cuts. Prior to the data releases, analysts had priced in three to four interest rate cuts this year starting in June. Analysts now only expect one to two rate cuts in the last quarter of the year. The US dollar has appreciated over the last year. The US dollar index, which measures the value of the currency, appreciated 14.0% in April compared to the same month last year. The strong US economy,

coupled with a robust labour market and persistent inflation, is expected to keep Fed rates on hold for longer. As a result, the US dollar index will continue to appreciate as other central banks begin their rate cuts in advance of the Fed. The divergent interest rates between the US and other central banks will drive up US dollar demand.

CAD to USD 5YearTrend

0.84

0.82

0.80

0.78

0.76

0.74

0.72

0.70

0.68

0.66

0.64

Source: Bank of Canada

City of Surrey | 2024—2028 Financial Plan | Financial Overview

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