Reply To: Bank of Canada Hikes Rates 50 bps to Highest Level Since 2008


Bank of Canada’s Macklem

interest rate hikes have begun to work, but they will take time to feed through the economy
if high inflation sticks, much higher interest rates will be needed to restore price stability and economy will have to slow even more sharply
with inflation running well above target, the risk of people and firms expecting persistently high inflation is greater then risk of driving the economy into an unnecessary painful recession
increasing rates rapidly to rebalance supply and demand and keep inflation expectations anchored is our best chance of restoring price stability with a severe contraction
if inflationary forces are stronger than we expect, we’ll start to see inflation coming above our forecasts, and will adjust policy-setting to hitthe 2% target
if deflationary forces return inflation starts to come in below our forecasts again we will adjust to hit the target
over the long term it seems likely we won’t have the same disinflationary forces we’ve had for the last 30 years
potential developments such as an aging workforce and less efficient supply chains could make it harder to bring inflation down to 2% and keep it there. How much harder is difficult to say
even if volatility does not return to the pre-pandemic level, we can expect it will be much lower than it has been the last three years