Interest Rates In Canada Are Expected To Rise Again

Some economists believe Wednesday’s hike could be the last for a while. “We think by the time October comes around, we might be in a good enough position for the bank to pause and look at how the economy is reacting,” said Karyne Charbonneau, CIBC’s executive finance director. The September rate hike comes at a critical time for Canada’s economy. As natural gas prices fell, the annual rate of inflation stood at 7.6% in July, from 8.1% in June. Second-quarter GDP rose compared with the first three months of the year, although it slowed toward the end of the period and a preliminary estimate suggested a contraction in July. Meanwhile, the unemployment rate remains at an all-time low. Despite the drop in the rate of inflation, Bank of Canada Governor Tiff Macklem said in an August 16 op-ed that nearly 40-year high inflation remains a major concern. “Inflation in Canada has eased a bit, but remains very high,” Macklem wrote. “We know our work isn’t done yet — it won’t be until inflation returns to the 2 percent target.” Some of Canada’s big banks are predicting the central bank will raise the key rate by three-quarters of a percentage point to 3.25%. In a closely watched speech last week, Federal Reserve Chairman Jerome Powell gave a bullish message about its own rate hike cycle, saying the Fed would likely impose bigger rate hikes in the coming months. His message that the US central bank will remain hawkish on interest rates led some observers to speculate that the Bank of Canada’s Sept. 7 hike could even be a full percentage point. The bank raised its key rate in July by a full percentage point — the biggest single rate hike since August 1998 after a string of increases that began in March. Previously, the rate was at 0.25 percent where it has sat since it was cut to near zero at the start of the pandemic. Higher interest rates feed into higher borrowing rates across the economy, making it more expensive for Canadians and businesses to borrow money. The central bank hopes that by making the cost of debt more expensive, spending in the economy will slow and inflation will fall. However, senior economist David Macdonald at the Canadian Center for Policy Alternatives warns that the rapid pace of increases could have serious implications given the high level of corporate and household debt in the economy. In his latest analysis, MacDonald said private sector debt stands at 225 percent of the country’s gross domestic product. By comparison, the last time the bank raised interest rates this quickly was in 1995, when private sector debt was 142 percent of GDP. That higher level of debt, he says, will make it harder to achieve the bank’s desired “soft landing,” where rate hikes reduce inflation without triggering a recession. “What I really wanted to highlight in this analysis was the fact that private sector debt is much higher today than it was in the 1980s 1/8 and 3/8 of the 1990s and earlier times when we saw this kind of the rapid increase in interest rates. ” Macdonald said. “And why that matters, of course, is that it’s not just the interest rate that matters, but the interest rate is charged to something. It’s charged to private sector debt.” Macdonald has called for alternatives to reduce inflation using the federal government rather than central bank policy. Some of his recommendations include changing mortgage underwriting rules for investors to lower home prices and extending the new excess corporate profits tax beyond financial institutions. But Christopher Ragan, McGill University’s Max Bell School of Public Policy, said the central bank is best suited to take on the responsibility of keeping interest rates low. “There are very, very good reasons why we have an operationally independent central bank that tries to target inflation rather than governments, because governments in the past have done a very poor job at that,” he said. Ragan said the Bank of Canada’s independence allows it to act aggressively against inflation, while any government intervention would be highly political. But Ragan says reducing inflation with rate hikes is painful. “That’s why it’s really so important that we never let inflation get to high levels in the first place,” Ragan said. “Because it’s not just that high inflation is bad, it’s that reducing high inflation back to low inflation hurts a lot.” This report by The Canadian Press was first published on September 2, 2022.

title: “Interest Rates In Canada Are Expected To Rise Again Klmat” ShowToc: true date: “2022-11-13” author: “Patrick Osborne”

Some economists believe Wednesday’s hike could be the last for a while. “We think by the time October comes around, we might be in a good enough position for the bank to pause and look at how the economy is reacting,” said Karyne Charbonneau, CIBC’s executive finance director. The September rate hike comes at a critical time for Canada’s economy. As natural gas prices fell, the annual rate of inflation stood at 7.6% in July, from 8.1% in June. Second-quarter GDP rose compared with the first three months of the year, although it slowed toward the end of the period and a preliminary estimate suggested a contraction in July. Meanwhile, the unemployment rate remains at an all-time low. Despite the drop in the rate of inflation, Bank of Canada Governor Tiff Macklem said in an August 16 op-ed that nearly 40-year high inflation remains a major concern. “Inflation in Canada has eased a bit, but remains very high,” Macklem wrote. “We know our work isn’t done yet — it won’t be until inflation returns to the 2 percent target.” Some of Canada’s big banks are predicting the central bank will raise the key rate by three-quarters of a percentage point to 3.25%. In a closely watched speech last week, Federal Reserve Chairman Jerome Powell gave a bullish message about its own rate hike cycle, saying the Fed would likely impose bigger rate hikes in the coming months. His message that the US central bank will remain hawkish on interest rates led some observers to speculate that the Bank of Canada’s Sept. 7 hike could even be a full percentage point. The bank raised its key rate in July by a full percentage point — the biggest single rate hike since August 1998 after a string of increases that began in March. Previously, the rate was at 0.25 percent where it has sat since it was cut to near zero at the start of the pandemic. Higher interest rates feed into higher borrowing rates across the economy, making it more expensive for Canadians and businesses to borrow money. The central bank hopes that by making the cost of debt more expensive, spending in the economy will slow and inflation will fall. However, senior economist David Macdonald at the Canadian Center for Policy Alternatives warns that the rapid pace of increases could have serious implications given the high level of corporate and household debt in the economy. In his latest analysis, MacDonald said private sector debt stands at 225 percent of the country’s gross domestic product. By comparison, the last time the bank raised interest rates this quickly was in 1995, when private sector debt was 142 percent of GDP. That higher level of debt, he says, will make it harder to achieve the bank’s desired “soft landing,” where rate hikes reduce inflation without triggering a recession. “What I really wanted to highlight in this analysis was the fact that private sector debt is much higher today than it was in the 1980s 1/8 and 3/8 of the 1990s and earlier times when we saw this kind of the rapid increase in interest rates. ” Macdonald said. “And why that matters, of course, is that it’s not just the interest rate that matters, but the interest rate is charged to something. It’s charged to private sector debt.” Macdonald has called for alternatives to reduce inflation using the federal government rather than central bank policy. Some of his recommendations include changing mortgage underwriting rules for investors to lower home prices and extending the new excess corporate profits tax beyond financial institutions. But Christopher Ragan, McGill University’s Max Bell School of Public Policy, said the central bank is best suited to take on the responsibility of keeping interest rates low. “There are very, very good reasons why we have an operationally independent central bank that tries to target inflation rather than governments, because governments in the past have done a very poor job at that,” he said. Ragan said the Bank of Canada’s independence allows it to act aggressively against inflation, while any government intervention would be highly political. But Ragan says reducing inflation with rate hikes is painful. “That’s why it’s really so important that we never let inflation get to high levels in the first place,” Ragan said. “Because it’s not just that high inflation is bad, it’s that reducing high inflation back to low inflation hurts a lot.” This report by The Canadian Press was first published on September 2, 2022.

title: “Interest Rates In Canada Are Expected To Rise Again Klmat” ShowToc: true date: “2022-11-07” author: “Micheal Benedict”

Some economists believe Wednesday’s hike could be the last for a while. “We think by the time October comes around, we might be in a good enough position for the bank to pause and look at how the economy is reacting,” said Karyne Charbonneau, CIBC’s executive finance director. The September rate hike comes at a critical time for Canada’s economy. As natural gas prices fell, the annual rate of inflation stood at 7.6% in July, from 8.1% in June. Second-quarter GDP rose compared with the first three months of the year, although it slowed toward the end of the period and a preliminary estimate suggested a contraction in July. Meanwhile, the unemployment rate remains at an all-time low. Despite the drop in the rate of inflation, Bank of Canada Governor Tiff Macklem said in an August 16 op-ed that nearly 40-year high inflation remains a major concern. “Inflation in Canada has eased a bit, but remains very high,” Macklem wrote. “We know our work isn’t done yet — it won’t be until inflation returns to the 2 percent target.” Some of Canada’s big banks are predicting the central bank will raise the key rate by three-quarters of a percentage point to 3.25%. In a closely watched speech last week, Federal Reserve Chairman Jerome Powell gave a bullish message about its own rate hike cycle, saying the Fed would likely impose bigger rate hikes in the coming months. His message that the US central bank will remain hawkish on interest rates led some observers to speculate that the Bank of Canada’s Sept. 7 hike could even be a full percentage point. The bank raised its key rate in July by a full percentage point — the biggest single rate hike since August 1998 after a string of increases that began in March. Previously, the rate was at 0.25 percent where it has sat since it was cut to near zero at the start of the pandemic. Higher interest rates feed into higher borrowing rates across the economy, making it more expensive for Canadians and businesses to borrow money. The central bank hopes that by making the cost of debt more expensive, spending in the economy will slow and inflation will fall. However, senior economist David Macdonald at the Canadian Center for Policy Alternatives warns that the rapid pace of increases could have serious implications given the high level of corporate and household debt in the economy. In his latest analysis, MacDonald said private sector debt stands at 225 percent of the country’s gross domestic product. By comparison, the last time the bank raised interest rates this quickly was in 1995, when private sector debt was 142 percent of GDP. That higher level of debt, he says, will make it harder to achieve the bank’s desired “soft landing,” where rate hikes reduce inflation without triggering a recession. “What I really wanted to highlight in this analysis was the fact that private sector debt is much higher today than it was in the 1980s 1/8 and 3/8 of the 1990s and earlier times when we saw this kind of the rapid increase in interest rates. ” Macdonald said. “And why that matters, of course, is that it’s not just the interest rate that matters, but the interest rate is charged to something. It’s charged to private sector debt.” Macdonald has called for alternatives to reduce inflation using the federal government rather than central bank policy. Some of his recommendations include changing mortgage underwriting rules for investors to lower home prices and extending the new excess corporate profits tax beyond financial institutions. But Christopher Ragan, McGill University’s Max Bell School of Public Policy, said the central bank is best suited to take on the responsibility of keeping interest rates low. “There are very, very good reasons why we have an operationally independent central bank that tries to target inflation rather than governments, because governments in the past have done a very poor job at that,” he said. Ragan said the Bank of Canada’s independence allows it to act aggressively against inflation, while any government intervention would be highly political. But Ragan says reducing inflation with rate hikes is painful. “That’s why it’s really so important that we never let inflation get to high levels in the first place,” Ragan said. “Because it’s not just that high inflation is bad, it’s that reducing high inflation back to low inflation hurts a lot.” This report by The Canadian Press was first published on September 2, 2022.

title: “Interest Rates In Canada Are Expected To Rise Again Klmat” ShowToc: true date: “2022-10-25” author: “Barbara Duke”

Some economists believe Wednesday’s hike could be the last for a while. “We think by the time October comes around, we might be in a good enough position for the bank to pause and look at how the economy is reacting,” said Karyne Charbonneau, CIBC’s executive finance director. The September rate hike comes at a critical time for Canada’s economy. As natural gas prices fell, the annual rate of inflation stood at 7.6% in July, from 8.1% in June. Second-quarter GDP rose compared with the first three months of the year, although it slowed toward the end of the period and a preliminary estimate suggested a contraction in July. Meanwhile, the unemployment rate remains at an all-time low. Despite the drop in the rate of inflation, Bank of Canada Governor Tiff Macklem said in an August 16 op-ed that nearly 40-year high inflation remains a major concern. “Inflation in Canada has eased a bit, but remains very high,” Macklem wrote. “We know our work isn’t done yet — it won’t be until inflation returns to the 2 percent target.” Some of Canada’s big banks are predicting the central bank will raise the key rate by three-quarters of a percentage point to 3.25%. In a closely watched speech last week, Federal Reserve Chairman Jerome Powell gave a bullish message about its own rate hike cycle, saying the Fed would likely impose bigger rate hikes in the coming months. His message that the US central bank will remain hawkish on interest rates led some observers to speculate that the Bank of Canada’s Sept. 7 hike could even be a full percentage point. The bank raised its key rate in July by a full percentage point — the biggest single rate hike since August 1998 after a string of increases that began in March. Previously, the rate was at 0.25 percent where it has sat since it was cut to near zero at the start of the pandemic. Higher interest rates feed into higher borrowing rates across the economy, making it more expensive for Canadians and businesses to borrow money. The central bank hopes that by making the cost of debt more expensive, spending in the economy will slow and inflation will fall. However, senior economist David Macdonald at the Canadian Center for Policy Alternatives warns that the rapid pace of increases could have serious implications given the high level of corporate and household debt in the economy. In his latest analysis, MacDonald said private sector debt stands at 225 percent of the country’s gross domestic product. By comparison, the last time the bank raised interest rates this quickly was in 1995, when private sector debt was 142 percent of GDP. That higher level of debt, he says, will make it harder to achieve the bank’s desired “soft landing,” where rate hikes reduce inflation without triggering a recession. “What I really wanted to highlight in this analysis was the fact that private sector debt is much higher today than it was in the 1980s 1/8 and 3/8 of the 1990s and earlier times when we saw this kind of the rapid increase in interest rates. ” Macdonald said. “And why that matters, of course, is that it’s not just the interest rate that matters, but the interest rate is charged to something. It’s charged to private sector debt.” Macdonald has called for alternatives to reduce inflation using the federal government rather than central bank policy. Some of his recommendations include changing mortgage underwriting rules for investors to lower home prices and extending the new excess corporate profits tax beyond financial institutions. But Christopher Ragan, McGill University’s Max Bell School of Public Policy, said the central bank is best suited to take on the responsibility of keeping interest rates low. “There are very, very good reasons why we have an operationally independent central bank that tries to target inflation rather than governments, because governments in the past have done a very poor job at that,” he said. Ragan said the Bank of Canada’s independence allows it to act aggressively against inflation, while any government intervention would be highly political. But Ragan says reducing inflation with rate hikes is painful. “That’s why it’s really so important that we never let inflation get to high levels in the first place,” Ragan said. “Because it’s not just that high inflation is bad, it’s that reducing high inflation back to low inflation hurts a lot.” This report by The Canadian Press was first published on September 2, 2022.