Quote:
Originally Posted by opendoor
The rate hikes are unlikely to have had any real impact on inflation yet, but inflation already looks to be moderating. Canada's inflation over the last 3 months has been a little over 2% annualized, despite the fact that none of the last 3 rate hikes would have had any tangible influence on that.
In the counterfactual where the Bank of Canada didn't raise rates as aggressively, there's a good chance that inflation would be tamed regardless. But they don't want to take that risk because a recession is far less damaging than prolonged runaway inflation.
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They are likely overcorrecting yes. But that's my argument and issue with last year's BoC policies.
They didn't need to do this, economists pushed for interest rates to go higher in 2021 to stay in tune with inflation rising, central banks chose to keep them at historically row rates and let inflation occur naturally under the false claim it was transitory and go back close to the CPI target. It turned out to be one of the worst economic calls of all time.
BoC (and the US feds) screwed up royally in 2021 and is trying to play catch up. They clearly needed to raise rates, there is no avoiding it, but doing it sooner would have allowed for a potentially softer recession versus what we are likely to face.