Business

Carney alert for signs of U.S. downturn

Bank of Canada governor Mark Carney says any decision by the U.S. Federal Reserve to increase the American money supply would not result in the two countries' monetary policies heading in opposite directions.

Bank of Canada governor Mark Carney said Friday any decision by the U.S. Federal Reserve to increase the American money supply would not result in the two countries' monetary policies heading in opposite directions.

Interviewed on New York-based CNBC, Carney said the same changes in the economic outlook that would lead to moves by the American central bank would also prompt the Bank of Canada to change from its recent course of raising interest rates.

Bank of Canada governor Mark Carney, shown in July, says the bank is ready to ease monetary policy if the economic outlook deteriorates. ((Sean Kilpatrick/Canadian Press))

Carney said if the economy weakens, "then we'll deal with the direct consequences."

"Obviously, we'll adjust monetary policy to Canadian circumstances. There are limits to the divergence that there can be between Canada and the U.S."

The Federal Reserve said Tuesday it would continue to monitor the economic outlook and "is prepared to provide additional accommodation if needed to support the economic recovery."

That was widely seen as a sign the Fed is prepared to expand the use of its $2.3-trillion balance sheet to more aggressively buy U.S. treasury bonds in a move to push interest rates lower to encourage bank lending to business and consumer spending.

Carney said recent signs of American economic weakness are of "some concern" to Canada, given that 85 per cent of this country's exports go to the U.S., and the extent to which both the housing and auto industries in both countries are tied to each other.

Corrections

  • An earlier version of this story had the headline "Bank of Canada ready to match U.S. Fed." To clarify, Bank of Canada governor Mark Carney did not say the central bank would match U.S. monetary policy but said there were limits to how far the two countries' policies would diverge.
    Sep 24, 2010 12:44 PM ET

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