Definitely maybe

Concerns over the possibility of a rise in US interest rates had caused equity markets to reverse most of their early-year gains in the days prior to Wednesday's Federal Reserve meeting. However, markets staged a minor relief rally when Fed Chair Janet Yellen struck a slightly more dovish tone than investors had feared.

The Fed statement removed the term "patient" in describing the Fed's attitude toward tightening, but Ms Yellen was at pains to stress that this did not mean that the Fed would now be "impatient". Significantly, the Fed lowered its expectations for the upward path of interest rates through 2016, a clear indication that rates will rise more slowly, and possibly start to rise later, than previously expected.

The prospect of continuing low inflation, almost entirely thanks to low energy prices (something the Fed has no real influence over) certainly gives the Fed the luxury of waiting. In other respects, however, the excess of caution is quite remarkable. The US economy is in the middle of an extended string of job gains in excess of 200,000 per month, something not seen since the middle of the 1990s. While wages have remained remarkably tame, it is highly uncertain that this will remain the case if the employment picture remains strong.

At Ms Yellen's recent testimony to Congress, a number of Republican senators urged the Fed to get out ahead of any possible uptick in labour costs, on the grounds that this would reduce the risk of having to hike more aggressively later.  This is not advice the Fed seems likely to follow: it is apparent that Ms Yellen, like her predecessors Ben Bernanke and Alan Greenspan, fears that any strength in the economy (and in equity markets) is almost entirely attributable to the persistence of accommodative monetary policy.  Sooner or later the Fed is going to have to put that proposition to the test by actually raising rates, but it appears Ms Yellen's inclination is to postpone the evil day for as long as possible.

Meanwhile, up here in Canada, the OECD has released a sobering report on the country's near-term economic prospects, cutting its GDP growth forecasts for both this year and next to just over 2 percent. The culprit is, of course, oil, and there are certainly increasing signs that the collapse in global energy prices is starting to take a big toll on employment and exploration in the oil patch. (Think the low-$40/bbl price for benchmark crude is shocking?  The price for a barrel of Canadian heavy crude fell below $30/bbl this week!)

The shocking thing is that the OECD, in line with other forecasters, appears to see little prospect for the manufacturing sector of the economy to pick up any of the slack, despite the 25% decline in the exchange rate over the past year or so.  There could be no greater evidence that the collapse in Canada's manufacturing sector over the past decade is a structural and irreversible trend, rather than simply something cyclical.

Still, not to worry. As always, the housing sector is on standby to bail us out.  With the weather improving, the spring housebuying season is almost upon us, and right on cue, the big banks have lowered their mortgage rates.  You can now get a mortgage for a five-year fixed rate of 2.79%. Canada's household debt/earnings ratio recently set yet another all-time high (it stands at just over 163%), but the banks are apparently unworried about giving borrowers yet another incentive to buy an overpriced home using debt that will quickly become unserviceable once rates start to rise.

Think Fed Chair Yellen has a tough task ahead in deciding when and how far to raise rates without torpedoing the economy? For Bank of Canada Governor Poloz, that task might be just about impossible.