Poloz speaks cautiously
I had a chance to read the text today's speech from Bank of Canada Governor Stephen Poloz and it's full of uncertainties.
The bias is clearly towards higher rates but there isn't the kind of urgency you would expect from someone who had just hiked rates at back-to-back meetings.
"The economic progress we have seen tells us that the moves we took to ease policy in 2015 were the right thing to do. At a minimum, that additional stimulus is no longer needed. But there is no predetermined path for interest rates from here," Poloz said in the conclusion of his speech.
He went onto say that data will be particularly data dependent, could be surprised in either direction and will "feel our way cautiously".
The bulk of the speech tends to focus more on downside risks. Poloz notes that inflation has undershot the target for years and that "we do not yet know the full extent of the economy's reaction to various macroprudential measures aimed at imbalances in the housing market."
Prior to the speech, the market was pricing in a 38% chance of an October hiked and a 68% chance it would come in December instead. That rises to 90% by next March.
After reading the speech, the chance of an October hike sounds closer to 5% and certainly less than 50% in December.
Longer-term, this line really stands out for me:
"There is reason to think that interest rate increases may have more of an impact on the economy and inflation than they did in the past."
That's a strong signal that even if the BOC is optimistic in 2018 and beyond, we're not going to see back-to-back hikes. Instead, it will be at a pace closer to two hikes a year.
What I expect in the week or so ahead is for Canadian economists to back away from forecasting October hikes.
