Free Trial
JGB TECHS

(M2) Correction Extends

US STOCKS

Late Session Rebound

AUSSIE 10-YEAR TECHS

(M2) Corrective Cycle Remains In Play

AUSSIE 3-YEAR TECHS

(M2) Gains Still Considered Corrective

Real-time Actionable Insight

Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.

Free Access
MNI (Ottawa)
OTTAWA (MNI)

The Bank of Canada has enough evidence in hand on inflation and a tight job market to lift interest rates next week, Stephen Williamson, who has been a visiting scholar at the Bank of Canada and the Federal Reserve, told MNI.

“The Bank of Canada really needs to get going here” and should hike at the Jan. 26 meeting, said Williamson, a Western University professor in London, Ontario. “You can be fairly gradual about it” and avoid worries about “driving the economy off a cliff” he said, saying a hike every other meeting could work.

Bets on Governor Tiff Macklem waiting until at least April to lift the record low 0.25% rate -- guidance he gave just last month -- are being torn up this week. Reports have shown two-thirds of executives see inflation topping 3% over the next two years and CPI at the highest since 1991 when the BOC adopted inflation targets. While some economists maintain the BOC will wait until March to ensure the economy returns to full potential through the most infectious wave of Covid yet, Williamson said evidence from the UK and elsewhere suggests Omicron will cause less of a hit.

“The Covid situation, there's reason to be optimistic about that,” he said. “We’ve got a pretty rapid infection, but it doesn't make people that sick.”

GET BACK TO NORMAL

That leaves policymakers with inflation that's been higher and lasted longer than predicted, and a job market that appears tight. “The labor market is pretty much back to where it was pre-pandemic,” Williamson said.

The BOC has said it wanted to wait until the "middle quarters" of this year when the economy would reach full output and inflation stabilizes around 2%, and that price gains would slow to around that mark in the second half of 2022.

The Bank’s communication on measuring the economy’s “output gap” has always been a little vague and gives it “a lot of wiggle room to do whatever they want to,” Williamson said.

The BOC could look to bring its policy rate back towards 2% over a few years, something like its own estimate of a neutral setting, he said.

Canada "doesn’t look like an economy that’s in dire need of monetary stimulus,” he said. “It looks like one where monetary policy should get back to normal, it seems pretty clear to me.”

MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com
MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com

To read the full story

Why Subscribe to

MarketNews.com

MNI is the leading provider

of news and intelligence specifically for the Global Foreign Exchange and Fixed Income Markets, providing timely, relevant, and critical insight for market professionals and those who want to make informed investment decisions. We offer not simply news, but news analysis, linking breaking news to the effects on capital markets. Our exclusive information and intelligence moves markets.

Our credibility

for delivering mission-critical information has been built over three decades. The quality and experience of MNI's team of analysts and reporters across America, Asia and Europe truly sets us apart. Our Markets team includes former fixed-income specialists, currency traders, economists and strategists, who are able to combine expertise on macro economics, financial markets, and political risk to give a comprehensive and holistic insight on global markets.