HIGHLIGHTS OF THE WEEK

United States

*    The Federal Reserve committed to keep rates on hold through the end of 2014 this week, while today’s Q4 GDP released underscored the fragility of the economic recovery. Unfortunately, further monetary easing isn’t what is going to provide the jolt the economy needs.

*    What’s holding the economy back right now isn’t the price of credit; it’s the lack of quality borrowers. The pool of potential borrowers willing and able to take advantage of lower interest rates is limited. And as long as aggregate demand remains depressed, businesses will continue to put off investing until the economic outlook improves.

*    What the economy needs right now is more effective fiscal policy solutions. However, fiscal policy so far has tended to undermine the recovery rather than aid it.

Canada

*    With the U.S. Federal Reserve on hold until 2014, we expect the Bank of Canada to leave its key overnight rate unchanged until mid-2013.  In addition to this delayed start, we now forecast that the return to the neutral interest rate will take place over a longer period of time.

*    The revised interest rate outlook led the loonie to break through parity versus the greenback for the first time since November.  Canadian bond yields also fell across the curve.

*    The lower-for-longer interest rate profile implies an upward risk to our near-term domestic economic outlook.  At the same time, households are already heavily indebted and the national real estate market is overvalued by roughly 10-15%.  If both measures continue to ramp up in the presence of low interest rates, they will become heightened downside risks to the medium-term economic outlook.

Webcasts:

Canada:  https://www.brainshark.com/tdeconomics/vu?pi=zIazmYiZsz1sQYz0

United States:  https://www.brainshark.com/tdeconomics/vu?pi=zGlz15w9G0z1sQYz0

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Lorie Martin I Regional Sales Manager BC I Broker Services I TD Canada Trust | 604 346 5976 or 1 877 273 7498 x 2501