I've been surprised at the volume of criticism levied at the Bank of Canada after last week's decision to hold rates. The market was pricing in a 70% chance of a hike but the vast majority of economists thought they would hold pat.
It's clear that BOC Governor Tiff Macklem heard some of those criticisms. In comments published on the weekend, Macklem took a more-hawkish tone:
- “I’m not comfortable with where inflation is, but I don’t regret the actions we took”
- “Interest rates very clearly have to go up to dampen spending and bring demand in line with supply”
- “I think that deliberate approach where we are clear with Canadians on how we see things and what we think needs to happen has been very helpful through this crisis”
- “We’re starting at ultralow. And it’s clear we need to move up. At first, I think the implications are fairly obvious for interest rates. The further down the path you get, the more finely balanced those decisions will become, the more data-dependent they will become”
- Says he "doesn’t rule out that you do a few moves, and then you might pause and sort of assess the situation, and then perhaps restart. There are a variety of possible paths.”
- “We think it would be healthy to see some gradual slowing in the housing market. We can’t sustain the kind of strength in housing we’ve seen. I think that would be a good thing, not a bad thing"
“I remember this after 9/11; I remember after the global financial crisis. We lowered interest rates and people said, ‘Well, this is a terrorist attack, monetary policy is not going to work. This is a financial crisis, monetary policy is not going to work. This is a pandemic, monetary policy is not going to work.’ Well, it works.” .... “It worked on the downside,” he said. “It’s going to work on the upside.”
A main source of concern in Canada is the red hot housing market. Macklem himself appears reluctant to embrace the risk or even acknowledge it. I think that will prove to be a mistake.
