The Bank of Canada will raise interest rates by a quarter-point for a second straight meeting to 5.00% on July 12 following a five-month pause earlier this year and then hold well into 2024, according to a majority of economists polled by Reuters.
Maybe/probably but it’s a false dichotomy. Interest rates are only one mechanism for controlling inflation, and a target coarse one.
Consider housing, increasing the interest rates makes it harder to buy a house, but it also makes it harder to build a house. Since this inflationary spiral we seem to be getting sucked into is at least partly (probably mostly) tied to restricted supply of “the stuff to buy” side if the balance, prolonged high interest rates could lead to stagflation.
This same high inflation also effects capital spending at any company seeking to expand production.
I’m not an economist, and I’m sure you’d get three different answers from two different economists, but I’m thinking we’re getting into that tickle point where interest rate hikes might start putting us into stagflation. Fundamentally, central banks aren’t going to fix this global inflation problem by playing with interest rates. You’re dealing with a real loss in production wrt the pandemic, and now a major land war in a highly agriculturally productive area of the world.
Interest rates are also basically the only major lever the BoC has. At some point the government has to step up with changes aimed at reducing inflation, and so far they’re nowhere to be found.
Maybe/probably but it’s a false dichotomy. Interest rates are only one mechanism for controlling inflation, and a target coarse one.
Consider housing, increasing the interest rates makes it harder to buy a house, but it also makes it harder to build a house. Since this inflationary spiral we seem to be getting sucked into is at least partly (probably mostly) tied to restricted supply of “the stuff to buy” side if the balance, prolonged high interest rates could lead to stagflation.
This same high inflation also effects capital spending at any company seeking to expand production.
I’m not an economist, and I’m sure you’d get three different answers from two different economists, but I’m thinking we’re getting into that tickle point where interest rate hikes might start putting us into stagflation. Fundamentally, central banks aren’t going to fix this global inflation problem by playing with interest rates. You’re dealing with a real loss in production wrt the pandemic, and now a major land war in a highly agriculturally productive area of the world.
Interest rates are also basically the only major lever the BoC has. At some point the government has to step up with changes aimed at reducing inflation, and so far they’re nowhere to be found.