Quote:
Originally Posted by opendoor
You've created a fictional counterfactual in your head where raising rates by 25 points a few months sooner would have had a significant effect on long term inflation rates. There is simply no logical basis for that. Outside of 2 countries who've experienced significant deflation risks over the last couple of decades (Japan and Switzerland), no industrialized nations have avoided high inflation post-COVID.
|
I can't respond to each point and each post each time, but I will respond to this one.
Raising interest rates earlier would have most certainly softened the blow. Again we are talking about softening, and that means the economy would have still suffered as a result and Canadians would have still seen inflation and . Surely you see a difference between slowly raising the same 3% interest rate increase over 2 years versus 6 months, especially when those low interest rates for longer then necessary exacerbated a rush for more credit at historically low rates unlike anything Canada has seen? That is simple economics.
If you institutionalize inflation people simply accept the increases, and it is much harder to control it once it has let loose. The BoC failed to act on the warnings signs last year.
As a result of prolonged inaction, the BoC was caught with its pants down once new geopolitical factors arose (i.e the Ukraine invasion), and decided to hit the runaway inflation problem with a sledgehammer as it really had no other choice at that point. Doing such an attack has dire consequences to the economy and forces a recession, how severe of a recession and economic crisis is still unknown.
And again, just because the UK has decided it would rather spiral its economy out of control doesn't mean Canada should as well.
The BoC did not create the global conditions in supply chain and most certainly had no role in what is happening in Europe, but it most certainly did amplify inflation locally by stubbornly not acting and keeping the flows of cheap credit open until it was too late, and created a much more dire housing situation on the promise of cheap credit and 'low interest rates for a long time'
That you are continuing to defend their action and pointing to whataboutism by looking at inflation / interest rates else doesn't absolve the BoC and the Canadian situation it created. The BoC messed up the obvious warning signs last year. And now they are in a spot where they have to slow down on the rate hikes even though inflation is still running hot. Is today's action correct or wrong? Too early to say, as both actions have separate side effects and consequences. Will a quarter point difference today make or break the Canadian economy? Most unlikely. Maybe all the interest rate hikes were enough in bringing inflation down, but maybe they are not. Either way, Canadians will pay a price.
But these are the difficult decisions that have to be made today because of inaction last year that made today's problem worse than it needed to be.