1. Discuss why the Canadian Labor Congress would not want increased interest rates with a slowing economy.

When central banks increase the lending rate, the effect will be to decrease both business and consumer spending and slow down the economy. This is commonly referred to as tight money policy. The Canadian Labor Congress believes the economy is already declining and fears a further decline could lead not only to further slowing of the economy, but also to deflation.

2. Why do you think the Bank of Canada sees the impact of Hurricanes Katrina and Rita to be modest?

The central bank is taking the position that any decrease in petroleum production related to Katrina and Rita will be temporary and conditions will return to normal after a few months. Now, a few weeks after the hurricanes, many analysts agree with this position.

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