Quote:
Originally Posted by bluejays
I know this sounds conspiratorial but I do wonder if the BOC doesn't mind the reset of home prices. The economy has been strong for the most part, and no political party seems to want to have their hand in lowering prices substantially, to the point where homes have bubbled (specifically in Toronto and Vancouver). If it kept going surely there would be catastrophic consequences if it popped. This is just a convenient way to reset it without tying it to a governing party directly. That's my thought but I don't know if there's any basis to it.
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If the economy starts to wane - they will stop increasing/start decreasing rates - and then you're back on the same road.
The Economics 101 of stopping inflation is:
1) Economy is running too hot so demand is outpacing supply
2) (a) Interest rate increase increasing borrowing costs so people will spend less which slows down the economy
3) Inflation will go down
Right now - they've increased the rates 2(a) and (3) is happening.
But the economy is still running hot if you look at unemployment rates for example. Here's the US rates since 1950 or so -
https://fred.stlouisfed.org/series/UNRATE and you can see its at a rate as low as its ever been historically (you have to go back to the 50's/60s to see a rate this low).
So the thing that is supposed to cause inflation to decrease - economic slowdown - is not happening. But inflation is declining. So the worry is - if you stop increasing or even indicate you are going to stop increasing rates - inflation will come roaring back, because the only thing holding people back from spending more now is the threat of the borrowing cost continuing to increase in the future.