Inflation and challenges in US will create a real problem for the Bank of Canada and the next gov't

[CdnFox]

Jump in US inflation expectations, market jitters heighten Fed's dilemma | Reuters

Basically, the situation in the united states threatens to reignite inflation while at the same time allowing job growth to slow considerably.

This is a problem for the US fed because they want to control inflation. If they reduce interest rates that tends to fuel inflation. At the same time however if they don't it tends to have a negative effect on employment. So they are facing a weird damned if you do damned if you don't situation. They will probably keep the interest rates in the united states a little bit High

Now the problem is that Canada cannot have its interest rates lower than the US impractical terms. If our rates are lower people invest their money in the US where they get a higher rate on us bonds and interest vehicles. But we desperately need that money because we are currently spending massive deficits not to mention that while interest rates are higher the interest on the money that we have borrowed tends to go up. As bonds mature at lower rates they must be reinvested at higher interest rates for the next 5 years and that puts a strain on our financial resources

So our government will want to look at lowering interest rates in order to boost our economy which is beginning to sag and to inspire investments and business gross, but they are going to be hamstrung by the fact that the feds in the states are going to have a tough time doing that given their circumstances.

In many ways trump is not our biggest threat, and carney will not know how to handle this.