RE:Fed pivots to job losses The challenge for every central banker is the lag effect of their policy moves. They tightened hard and quickly and now 18 months later those effects "should" start hitting the economy. While we just had a blip up in inflation, it does not necessarily signal code red.
Next month will provide more clarity. If inflation dips down again then I would say we are back on a good path. Due to the lag of all those monster increases that started in March '22, they may want to get one rate cut in before the summer. It may seem like a mistake to do that in the face of +3% inflation but again they don't want to get caught behind the lag effect. Canada more than the US would want that to resuscitate the housing market which we are so heavily dependent on.
The path to a soft landing is still in sight but the range of success is very narrow.
Torontojay wrote: When will the Bank Of Canada lower interest rates? This has been on people's mind but I'll give an attempt on what I think they will do. If one recalls last year at this time when the bank policy rate paused prior to the spring housing rally. Tiff Macklem had no choice but to raise an additional 50 basis points to tame inflation which was still running out. Now, do you really think Tiff Macklem will lower rates before spring time to have another repeat of what happened last year? I don't think so because he would be making the same policy error he made last year. Moreover, inflation is still running high in this country and I don't think they've been telling the truth either but I digress.
According to the Bank of Canada, Cpi trim or Cpi median is still running at 3.7% and 3.6% respectively. These are measures that the Bank of Canada are focusing on because it gives a better measurement of where inflation is in this country. The headline number that's reporting in the media is highly volatile month over month and not insightful. Canada still has a long way to go to bring inflation back to target and a recession will bring it down and force the BoC to cut rates.
I believe Tiff is going to remain in restrictive mode until something major breaks which will force him to pivot. The recession will be more apparent as they become reactive to job losses rather than worry about inflation. If rate cuts happen prior to the spring it will be validation that something major has broken in the system. To use a similar analogy, when a person develops a high fever, they eventually get better and rebound just as I believe recessions are a natural part of the business cycle. It weeds out all the malinvestments that took place during covid just as a virus weeds out the vulnerable and sick. When a tree falls down, a new one replaces it and life moves on just as the business cycle does.
Canada will eventually rebound and prosper as they did many times before.