From transitory to forcefully, Canada’s central bank now believes it must act aggressively to tackle high inflation. Bank of Canada (BoC) Governor Tiff Macklem acknowledged some mistakes interpreting inflation. Speaking to lawmakers, he explained they are working to correct the issue. Canada’s economy has recovered and moved into excess demand, allowing them to pursue higher interest rates. Much higher interest rates if stubborn inflation won’t fall, and requires forceful action.
The Bank of Canada Made “Some Mistakes,” Says Governor
The BoC made a few mistakes addressing inflation and they’re working on the issue. That was the message from the Governor, when asked if the BoC is behind the curve and would have handled things differently in hindsight. He further explained they’re responding to those mistakes by aggressively raising interest rates.
“Look, we got a lot of things right. We got some things wrong,” said Governor Macklem. “And we are responding. You saw that a couple of weeks ago. We raised the policy rate. Took the unusual step of raising the policy rate by 50 basis points to 1%. We’ve signaled very clearly that Canadians should expect further increases and look ahead to our next decisions. You know, I think we will be considering taking another 50 basis point step.”
Canada’s Economy Has Recovered and Shows Excess Demand
Canada’s economy is booming and will support elevated rates to cool high inflation. The Governor stressed that Canada’s economy is now very strong and fully recovered. Inflation is higher than expected and will persist longer than previously thought. It’s no longer a transitory issue, but the economy has moved into a period of excess demand.
“We need higher rates,” he bluntly explained. “Our policy interest rate is our primary tool to keep the economy in balance and bring inflation back to the 2% target. Two weeks ago, we raised our policy rate by 50 basis points to 1%, and we indicated Canadians should expect further increases.”
Bank of Canada Sees Inflation As A Threat and Will Act Forcefully
Did we mention the BoC sees interest rates higher? Let’s do it one more time since that was a key message from the Governor. For the third time this year, the BoC used the term “forcefully” to describe the actions they’re ready to take. If needed, they’re prepared to raise the overnight rate above neutral, intentionally slowing the economy.
The sky’s the limit on how high interest rates will rise. Elevated inflation is a significant risk that’s difficult to navigate. High inflation erodes the value of money faster and drives investment away. Most importantly, these issues are felt strongest by the vulnerable. The BoC has acknowledged those most impacted are low income households and pensioners
Governor Macklem reiterated only inflation has a target, not the overnight rate. Interest rates can rise as high as needed to knock out excess demand in the economy. We might not require rates to hit the neutral rate if inflation begins falling sooner. Though with the BoC forecasting elevated inflation until 2024, its warning of going past the neutral rate is more likely.
People with high debt levels will pay a enormous price for the BOC mistake. If you’re highly leverage in the real estate market, now is the time to get out.
When the TTC is being used as a homeless shelter, and those beggars are begging for $5, you know that inflation is high in Canada.
What did they get right!!!!?
Great question. Tiff is either a chrony capitalist crook, or an idiot.
that’s what I want to know!
Look everyone! The Bank figured out what people already knew for the past year!
Because They are retarded or crook .
The level of incompetence is astonding!
Clearly cmhc and the bank of Canada have failed to properly regulate the housing market and are responsible for the high inflation and housing prices. Cmhc should just be scraped all together instead of putting tax payers on the hook
Ok. So they will raise rates to cool inflation. Ok. Will this turn out the same way they wanted to increase inflation because it was so low? It’s fine. Nothing to see here. Just six quarters earlier than they promised with about three times the increase in rates.
I’m sure our highly leveraged population won’t implode. It’s a good thing we reduced poverty and increased wages during the recession /s.
Yes, an aggressive approach to use what tools are available to slow inflation but with a side order of caution. At this stage there are many potential risks .
Have fun holding onto your houses people…. CRASH INBOUND! Good job everyone believed all of Tiff’s gaslighting of rates will stay low forever and meanwhile we are going to double the money supply and inflation will be “transitory”… Enjoy the inflationary depression where your cost of living explodes simultaneously those house and cars that are tied to interest rates get crushed in a devaluing dollar!
Good luck with that. Canada is a debtor nation that thinks they have the world’s reserve currency. BofC and Canadian gov have no courage to raise rates so the world will crush the Canadian dollar as a consequence. Either way, Canadians are screwed with their housing bubble economy. Love it. Lol
The BOC along with the government caused rampant inflation by putting interest rates too low for too long encouraging super sized speculation in real estate and the stock market.
The government helped fuel the fire by giving away too much money to too many people that didn’t qualify because of mistakes in the wording of who gets CERB benefits. Part timers making less than 5000 per year got 24000 .
We need yo immediately start taxing investment properties at at least 2% of the value every year and not allowmany of the current write offs.
It has been so long since a housing correction that very few people alive remember what it looks like. Preaching to them about it is not helpful. When a real estate correction does happen, it does not happen in isolation, many other things go wrong at the same time. It is also usually widespread and devastating for everyone who has debt and it does not discriminate. Boomer parents who loaned their children hundreds of thousands from their HELOC to purchase overpriced condos in Toronto or tear down bungalows in Whitby may be the hardest hit as they will have the least amount of time to recover; and the market will recover, but most likely not on their timeline. At the exact moment you want to say “I told you so”, you will be better served offering a shoulder and a hug. As long as we are nicer to everyone, we will get through this.
TM’s statement looks like an attempt to regain credibility so he can avoid bothering the “investor” class for a few more months. Relax, everyone. Mr. Macklem agrees “forceful” action is needed and he “may” start doing that soon. Never mind that, so far, all he’s actually done is reluctantly approve small interest rate increases that should have happened a year ago.
Someone should launch a “FireTIFF” campaign on Twitter before its new owner runs it into the ground.
Tiff is a genius but the people who pull his strings are idiots.
Chrystia Freeland and her entourage stayed in Edinburgh instead of Glasgow where the recent COP26 conference was being held. They drove back and forth to their hotel in a private limo.
Once the new carbon taxes come into effect we simple people will be driving donkey carts while Elite Super Emitters have canapés delivered by jet planes.
Who created inflation and allowed the real estate price increase. Now people are holding properties with huge mortgages. The Canadian Govt should now rescue the people by paying Universal Basic Income for all canadians whose income is less than 75000.00.
My bank executive neighbour says the banks anticipate that interest rate hikes will raise the average mortgage by $500/month. This is expected to be hardest on speculators who own multiple properties. And then when recession hits (I think we’re already in a recession but nobody is asking me) the BOC will lower interest rates again–and set off another real estate buying frenzy.
The “Inflation is transitory” narrative will go down like the “Subprime is contained” narrative from 2008 and we all know how that turned out. Central banks like the BoC were just buying time not to raise rates but now that it’s so blatantly obvious that inflation is not only not transitory but also accelerating, they can no longer pretend it’s not a major problem for fear of loosing credibility in their ability to fight inflation which we will soon find out they don’t have much of. Remember guys inflation is currently at 6.7% about to go higher and the overnight lending rate is at 1%, this is the largest gap ever.
The “Inflation is transitory” narrative will go down like the “Subprime is contained” narrative from 2008 and we all know how that turned out. Central banks like the BoC were just buying time not to raise rates but now that it’s so blatantly obvious that inflation is not only not transitory but also accelerating, they can no longer pretend it’s not a major problem for fear of loosing credibility in their ability to fight inflation which we will soon find out they don’t have much of. Remember guys inflation is currently at 6.7% about to go higher and the overnight lending rate is at 1%, this is the largest gap ever.
Your most important job is to keep inflation in check – and you failed. Whatever else you go right doesn’t matter at this point. Resignation of BOC governor required to sustain trust in BOC.