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GS Keeps Jan Liftoff, Sees 4 Hikes 2022 And 2.75%  Terminal

CANADA
  • Goldman has called for Jan lift-off since October on the perception of the BoC’s limited tolerance for high inflation and the expectation that strong Q4 data will see the BoC’s lift-off criterion of slack absorption met earlier.
  • Although not a done deal, they continue to expect a 25bp hike tomorrow.
  • “The sharp decline in the u/e rate, the deterioration in capacity pressures from the BOS, and the rise in core inflation suggest that the BoC will conclude slack is now absorbed”.
  • However, a stickier BoC view on potential GDP could see it pull forward liftoff only modestly to March (or April) from the “sometime in the middle quarters of 2022” in its October projection. Especially seeing as Q4 headline CPI has risen slightly less than the BoC projected.
  • GS see 4 hikes this year (risk of faster) and to eventually reach a terminal rate of 2.75%, well above market pricing. This reflects a real neutral rate likely higher than the BoC’s 0.25% estimate. Balance sheet runoff is expected to start around mid-year.
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