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Mark Carney struggles with what Ben Bernanke wrought

U.S. Federal Reserve Chairman Ben Bernanke speaks at a news conference following the monthly two-day meeting at the Federal Reserve in Washington, April 25, 2012.


Mark Carney is struggling with what Ben Bernanke hath wrought.

And no matter what Mr. Bernanke does Wednesday after the meeting of the Federal Open Market Committee, it won't be as exciting as what Mr. Carney did Tuesday with the Bank of Canada's policy statement.

Well, he could be more exciting, but he won't be.

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Mr. Bernanke and his colleagues on the Federal Reserve's policy-setting panel aren't expected to do much Wednesday other than hold the line on exceptionally stimulative measures.

They unveiled another round of asset buying – dubbed QE3 for the third time out with quantitative easing – last month while also extending a pledge to hold their benchmark Fed funds rate near zero until at least mid-2015.

"After pressing harder on the monetary gas pedal in September, the Fed will likely stay in cruise control for a few months to monitor the effectiveness of recent policies," senior economist Sal Guatieri of BMO Nesbitt Burns said of Wednesday's announcement.

"With the unemployment rate trending lower and the expansion picking up some, there is little urgency for additional monetary fuel."

Indeed, the announcement of QE3 was the biggie, and it's one that's causing a headache for Mr. Carney, though he won't put it in those words.

Quantitative easing is a scheme that pressures the U.S. dollar, in turn putting upward pressures on other currencies, such as the loonie, as it's known in Canada.

As the Bank of Canada warned Tuesday when it held its own benchmark overnight rate steady at 1 per cent, the Canadian dollar is hurting Canada's economy, and that's partly because of the actions of other central banks, though, of course, many other factors are at play.

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"Canadian exports are projected to pick up gradually but remain below their pre-recession peak until the first half of 2014, reflecting weak foreign demand and ongoing competitiveness challenges," Mr. Carney and his colleagues on the central bank's rate-setting panel said in their statement.

"These challenges include the persistent strength of the Canadian dollar, which is being influenced by safe haven flows and spillovers from global monetary policy."

The Bank of Canada did not point the finger at any other country, such as the United States, though, as Paul-André Pinsonnault and Krishen Rangasamy of National Bank of Canada put it, "read the Fed's money printing exercise."

Mr. Carney, while still pointing to eventual rate hikes, is nonetheless in no rush to boost its benchmark, in part because of the strength in the loonie. Such a move would bring even more foreign money into Canadian assets.

As for the Fed Wednesday, there has been some talk that Mr. Bernanke could change his "mid-2015" pledge, though, as Bank of Nova Scotia pointed out, that would make little sense.

"Why would it remove such explicit guidance just one month later?" said Scotiabank economists Derek Holt and Dov Zigler.

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"Such a step may lessen market confidence regarding policy stability at the Fed, and the Fed would certainly not do so with complete disregard for the possible market impact. Therefore, believing that the statement would be overtly dropped and not replaced with something else seems rather simplistic to us."

The Fed has many challenges, primarily a crisis on the jobs front. There have been signs of improvement of late, but there's nowhere near enough job creation yet for a meaningful dent in the ranks of the unemployed.

"The statement may also make a nod to some improvement in labour market conditions referring to upward revisions to payrolls in July and August and declines in the unemployment rate in both August and September," said assistant chief economist Paul Ferley of Royal Bank of Canada.

"As well, recent retail sales numbers suggest some strengthening in consumer spending going into the second half of the year with housing continuing to rebound. However, aggregate GDP growth remains modest and needs to strengthen to put sustained downward pressure on the unemployment rate. To achieve such the Fed is likely to retain the forward guidance that the exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.'"

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