Carney braces for U.S. recession

OTTAWA — Canada's central bank is bracing for a mild U.S. recession, a shift in outlook that could force policy makers to consider cutting interest rates.

Speaking in Montreal Thursday, Bank of Canada Governor Mark Carney said Wall Street's meltdown is restricting the availability of U.S. mortgages, restraining the housing market's recovery and depressing consumer spending.

“In our interest rate announcement earlier this month, we identified the possibility of a negative feedback loop between a weaker U.S. economy and tighter credit markets as the main risk to a modest U.S. recovery next year,” Mr. Carney told the Canadian Club of Montreal. “Subsequent events have further weakened the U.S. financial sector, making this risk more probable.”

In July, when the Bank of Canada last updated its economic outlook, it predicted U.S. gross domestic product would average growth of 1.6 per cent in 2008 and 1.5 per cent in 2009.