~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, 含羞草研究社淥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.含羞草研究社� 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 含羞草研究社� to control inflation. The Director of the Centre for Future Work, labels it, 含羞草研究社渢he Bank of Canada含羞草研究社檚 one-dimensional mission含羞草研究社�. That is a limited view of its role. The Monetary Policy Framework, an agreement between the Bank and the government, does stress, 含羞草研究社渢he primary objective of monetary policy is to maintain low, stable inflation over time含羞草研究社�, but also notes, 含羞草研究社淢onetary policy should continue to support maximum sustainable employment含羞草研究社�.含羞草研究社� Stanford含羞草研究社檚 narrow view of the Bank含羞草研究社檚 role appears to stoke his fear that the Bank may well continue to hike rates.

The Bank含羞草研究社檚 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, 含羞草研究社淚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.含羞草研究社� 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 含羞草研究社渟lowed sharply含羞草研究社� 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 BoC含羞草研究社檚 September decision to hold overnight rate at 5%.

Then comes the bad news, 含羞草研究社淩ecent CPI data indicate that inflationary pressures remain broad-based.含羞草研究社� 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 Bank含羞草研究社檚 core measures of inflation remain at 3.5%. Of course, the usual statement of determination follows, 含羞草研究社淭he Bank remains resolute in its commitment to restoring price stability for Canadians.含羞草研究社� 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, 含羞草研究社淢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.含羞草研究社� Macklem added that if they have to, they will raise rates again, but they don含羞草研究社檛 want the rate to be higher than necessary.

Many economists think the Bank won含羞草研究社檛 have to raise rates again because excess demand has been wrung out of the economy. Stephen Brown of Capital Economics noted, 含羞草研究社淲ith demand quickly shifting from excessive to deficient, and given our expectation that two CPI releases before the Bank含羞草研究社檚 next meeting will show an easing of core inflation pressures, there will be little need for the bank to hike any further.含羞草研究社�

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, 含羞草研究社渦nless growth rebounds in Q3 含羞草研究社� which we doubt 含羞草研究社� the BoC is likely done with rate hikes.含羞草研究社�

Brown, went further, 含羞草研究社淲ith recession risks rising and labour market conditions loosening, we continue to think that the bank含羞草研究社檚 next move will be a rate cut, in early 2024.含羞草研究社� Brown was amongst the most optimistic of the experts, but cautious optimists predominate.

The BoC含羞草研究社檚 next move may indeed be a cut 含羞草研究社� not necessarily in the first quarter of next year 含羞草研究社� but plausibly within the first two or three quarters. That said, unequivocal forecasts are a risky undertaking. Economists won含羞草研究社檛 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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