Paul Ferley Quotations

Bubble conditions may not be present yet but are approaching such and thus require close monitoring going forward. To allay this concern, housing price increases will need to start to moderate soon from recent sharp increases. Our expectation is that this should occur, since rising mortgage rates should slow the growth in housing prices to a rate below gains in income.

Given that we import a lot of capital equipment, this further strengthening of the Canadian dollar does make a lot of those investment goods that much cheaper.

Recent comments by Fed officials on indications that the U.S. economy had a fair bit of momentum going into the natural disaster seems to have resulted in the consensus of the Fed continuing to hike rates,

Markets are probably waiting for the announcement by the Bank of Canada tomorrow to get a sense of the characterization of the near-term outlook for policy: whether they'll flag they're poised to move to the sidelines or whether they're still contemplating further rate hikes.

This statement did imply a slightly less aggressive tone relative to its previous statement.

We saw most of the indicators move up in the month, with the exception of the prices paid index, which generally provides an indication of strength in activity.

Bottom line is it's not flagging any inflation pressures, at least on a core basis.

Pressures are particularly evident in the West where housing prices in local markets such as Riverside-San Bernardino (outside of Los Angeles) and Las Vegas are rising rapidly with an attendant marked deterioration in affordability. Rising prices in those areas seem more the result of speculative pressures and thus indicative of local housing market bubbles. There is the definite risk in these markets that prices will eventually need to correct sharply lower.

Despite solid growth, inflation is quiet which is reflected in low bond yields.

It's suggesting this structural change playing out in the U.S. economy seems to still be continuing.

The numbers still suggest growth in the third quarter of about 3 percent, so the economy continues to expand at fairly close to long-term average rate,

So at the moment, markets generally assume the Fed will continue to tighten. That expectation is generally resulting in the U.S. dollar strengthening, though the Canadian dollar seems to be holding its own.

The labor market is getting too tight, so the Bank of Canada may have to raise the rate more aggressively to keep inflation from taking hold. Higher interest rates get investors to buy the Canadian dollar.

The Canadian dollar is holding fairly steady. Looking ahead, we're not getting too much economic news until next week.

Canada seems to be getting support from strengthening commodity prices.

But in the current environment, interest rates are not rising to punitive levels; rather, the current tightening is meant to keep growth at a sustainable pace.

Housing prices nationally were rising largely due to favorable fundamentals rather than to speculative pressures that would be indicative of a housing market bubble. However, the situation seems to have changed recently. Affordability has deteriorated significantly in the second and third quarters of 2005 as housing price increases have spiked higher. As a result, affordability is quickly closing the gap relative to this measure's long-run historical average.

The currency is pretty steady, with markets remaining fairly thin with little economic data. We're awaiting deeper markets, plus the release of employment reports for both Canada and the U.S. next week.

The day saw some offsetting developments with strength evident in U.S. housing starts and the Philadelphia Fed index and in Canada, a stronger than expected manufacturing shipments report.