~BW Uzelman

The Bank of Canada held interest rates steady at 5% on September 6. Economists are cautious in their predictions for future rates, but are broadly optimistic.

Rising mortgage rates are impacting increasing numbers of Canadians. But Benjamon Tal, deputy chief economist of CIBC informs that a large number of mortgage and other household debt holders will not be impacted in 2023. His report reads, 91裸聊视频淥ut of the total household debt of $2.7 trillion, close to $650 billion (24 per cent) face actual increase in interest payment this year.91裸聊视频� These debt holders and others, no doubt, want an answer to two questions: When is the Bank done hiking interest rates? When will they start cutting rates? Back to that in a bit.

Economist Jim Stanford argues that the Bank has only one job 91裸聊视频� to control inflation. The Director of the Centre for Future Work, labels it, 91裸聊视频渢he Bank of Canada91裸聊视频檚 one-dimensional mission91裸聊视频�. That is a limited view of its role. The Monetary Policy Framework, an agreement between the Bank and the government, does stress, 91裸聊视频渢he primary objective of monetary policy is to maintain low, stable inflation over time91裸聊视频�, but also notes, 91裸聊视频淢onetary policy should continue to support maximum sustainable employment91裸聊视频�.91裸聊视频� Stanford91裸聊视频檚 narrow view of the Bank91裸聊视频檚 role appears to stoke his fear that the Bank may well continue to hike rates.

The Bank91裸聊视频檚 economic analysis is much broader than simply examining the headline rate of inflation and its favoured core measures of inflation. It also conducts analyses of the labour market, the strength of the economy (GDP) and much more. Its September 6 press release says, 91裸聊视频淚n particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the 2% inflation target.91裸聊视频� The Bank examines and interprets trends across the economy before determining appropriate monetary policy.

Unsurprisingly, the Bank leaves considerable doubt as to whether it will raise rates further. The press release notes that the economy has 91裸聊视频渟lowed sharply91裸聊视频� in the second quarter, with output contracting by 0.2%, which is necessary to relieve price pressure. The release details weaker consumption growth, reduced housing activity and a lessening of the tightness in the labour market, along with continuing wage growth of 4%-5%. The Bank concludes that excess demand is diminishing. This is largely positive, sustaining the BoC91裸聊视频檚 September decision to hold overnight rate at 5%.

Then comes the bad news, 91裸聊视频淩ecent CPI data indicate that inflationary pressures remain broad-based.91裸聊视频� Inflation increased to 3.3% in July, and with recent gas price increases, the Bank expects the rate to remain elevated in the near term before reducing course. Causing further concern, the Bank91裸聊视频檚 core measures of inflation remain at 3.5%. Of course, the usual statement of determination follows, 91裸聊视频淭he Bank remains resolute in its commitment to restoring price stability for Canadians.91裸聊视频� All in all, it is a mixed message: Excess demand is moderating, but inflationary pressures remain.

The next day, however, the Governor of the BoC, Tiff Macklem, managed to sound more optimistic. He allowed, 91裸聊视频淢onetary policy is working, and inflation is coming down. But we still have some way to go to restore price stability. With past interest rate increases still working their way through the economy, monetary policy may be sufficiently restrictive to restore price stability.91裸聊视频� Macklem added that if they have to, they will raise rates again, but they don91裸聊视频檛 want the rate to be higher than necessary.

Many economists think the Bank won91裸聊视频檛 have to raise rates again because excess demand has been wrung out of the economy. Stephen Brown of Capital Economics noted, 91裸聊视频淲ith demand quickly shifting from excessive to deficient, and given our expectation that two CPI releases before the Bank91裸聊视频檚 next meeting will show an easing of core inflation pressures, there will be little need for the bank to hike any further.91裸聊视频�

Charles St-Arnault of Alberta Central was not so certain. He said further rate increases this year are unlikely, but cannot be ruled out. Douglas Porter of BMO Financials was more confident, 91裸聊视频渦nless growth rebounds in Q3 91裸聊视频� which we doubt 91裸聊视频� the BoC is likely done with rate hikes.91裸聊视频�

Brown, went further, 91裸聊视频淲ith recession risks rising and labour market conditions loosening, we continue to think that the bank91裸聊视频檚 next move will be a rate cut, in early 2024.91裸聊视频� Brown was amongst the most optimistic of the experts, but cautious optimists predominate.

The BoC91裸聊视频檚 next move may indeed be a cut 91裸聊视频� not necessarily in the first quarter of next year 91裸聊视频� but plausibly within the first two or three quarters. That said, unequivocal forecasts are a risky undertaking. Economists won91裸聊视频檛 go there, at least not now.

bruce

Bruce W Uzelman

I attended the University of Saskatchewan in Saskatoon.I obtained a Bachelor of Arts, Advanced with majors in Economics and Political Science in 1982.

I have maintained a healthy interest in politics throughout my adult years, and wish to put that and my research skills to work as a political columnist.

Contact: urbangeneral@shaw.ca

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