The Bank of Canada released their interest rate decision yesterday morning, and held firm…mostly. More significantly, they removed their extraordinary forward guidance, meaning that they have sent the warning that rates are going to rise. Why they didn’t raise them this time is because they had that guidance in place, which essentially said that they weren’t going to raise rates until later in 2022 as a way to help the economy recover from the pandemic—but it has largely recovered, albeit unevenly. With omicron still having an effect, there is still an abundance of caution being exercised—not to mention the fact that raising interest rates won’t actually have an effect on what is currently driving inflation, so it has the potential to do more harm than good right now.
I guess we really shouldn't be surprised that the Bank of Canada didn't move today: December's announcement held the forward guidance in place.
For forward guidance to be effective, it has to be credble. And to be credible, you have to do what you'll say you'll do.
— Stephen Gordon (@stephenfgordon) January 26, 2022
OTOH, the Bank also knew that there'd be 2 CPI releases before the next rate announcement. Now it has to play catch-up.
— Stephen Gordon (@stephenfgordon) January 26, 2022
The Monetary Policy Report was also released yesterday, which highlighted how transportation bottlenecks, labour shortages and the difficulty in sourcing key inputs are having an impact on the Canadian economy. More to the point, there has been good economic momentum heading into 2022, and the “slack” in the economy has been absorbed, meaning that the extraordinary measures that were brought in to stimulate the economy at the start of the pandemic can more readily be wound down now, which is another key indicator of why rates are going to start rising again. They also see inflation winding down later over this year, providing that supply bottlenecks and cost pressures don’t carry on for longer than anticipated.
Meanwhile, here’s Kevin Carmichael with his read of the rate decision, the MPR, and what signals the Bank of Canada is sending.
Good reads:
- Justin Trudeau announced that Canada is extending and expanding its training mission to Ukraine, along with sending non-lethal and cyber-security assistance.
- Ottawa police are preparing for the arrival of the grifter convoy and the possibility of violence; meanwhile, their “MOU” on toppling the government is insane.
- The CEO of one of the country’s grocery oligopolies says bare shelves are mostly because of COVID absenteeism, not cross-border vaccine mandates for truckers.
- Big city mayors are crying for federal funds for transit because ridership has taken such a dramatic hit from the pandemic.
- The Conservatives had the first day of their winter caucus retreat yesterday, but their election loss report won’t be discussed until today.
- Jagmeet Singh denounced the grifter convoy, but then had to deal with the fact that his brother-in-law donated $13,000 to them in a “misunderstanding.” (Sure, Jan).
- NDP MPs are being called out for repeating Russian propaganda about Ukraine.
- Stephanie Carvin, Kurt Phillips and Amarnath Amarasingam look at how far-right groups capitalise on pandemic fears, and get fuelled by social media.
Odds and ends:
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