Tiff Macklem Is Ready to Hike Rates Again If Inflation Fails to Decline
Bank of Canada Governor Tiff Macklem is caught between a rock and a hard place that is threatening to erode any credibility he has left.
Last month, he assured Canadians the central bank will pause rate hikes after delivering a 25 basis-point increase in January 25, conditionally ending what has been one of the most aggressive tightening cycles in history that brought borrowing costs to 4.5% in less than 12 months. “We’re still a long way from our inflation target, but recent developments have reinforced our confidence that inflation is coming down,” said Macklem in a series of prepared remarks before the House of Commons finance committee on Thursday.
Arguably, though, last week’s jobs report showed that Canada’s economy added 150,000 more workers in January, significantly surpassing even the most conservative estimates and bringing the unemployment rate to 5%— a rate economists consider maximum employment. Those figures also came against updated forecasts from the Bank of Canada calling for economic output to stall in the first half of 2023.
“The labour market is just too tight. It does need to get better balanced, Macklem acknowledged. “The Canadian economy remains overheated and clearly in excess demand, and this continues to put upward pressure on many domestic prices.” Indeed, it is difficult to fathom that Canada’s economy is barrelling towards a meaningful slowdown, especially as consensus forecasts call for a continued elevated CPI print for January, which is slated to be released on February 21.
So, to salvage what is left of his credibility, Macklem nonchalantly walked back on his January 25 statement, this time showing Canadians that he’s ready to play ball if inflation fails to recede into forecasted territory. “The tightness in the labour market needs to ease, wage growth needs to moderate, and service price inflation needs to cool,” he explained. “If evidence begins to accumulate to show that inflation is not declining in line with forecast we are prepared to raise policy rate further.”
Macklem also took the opportunity to remind Finance Minister Chrystia Freeland to exercise prudence when it comes to bottomless government spending. “If government spending contributes more to aggregate demand at a time when we’re trying to cool the economy, then that wouldn’t be helpful,” he added.
Information for this briefing was found via the Canadian Press and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
