The Federal Reserve and Bank of Canada Prepare to Raise Rates in March
This week’s Bank of Canada (BoC) decision to hold interest rates steady was consistent with our forecast, but surprised many investors and forecasters. The BoC’s next move will probably be much less controversial. Most forecasters now agree the BoC will begin raising rates at its next meeting on March 2. It has removed its exceptional forward guidance, warning Canadians it will be taking a series of steps to get inflation back on target. We believe this means four rate hikes are on tap for 2022. Like the Federal Reserve (Fed), the BoC will likely start to roll down its balance sheet this year, which may significantly tighten financial conditions. This is needed to rein in high inflation, but the BoC shouldn’t overdo it either.
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