50 point Rate Increase at Bank of Canada | General financial discussion | Discussion forum

The question is how far is BoC willing to go to arrest inflation to its new objectives and whether the BoC can do it alone if the US Fed is not nearly as aggressive. And finally, whether it can (or should) be done without triggering a recession.

Its clear BoC is now focused 100% on aggressively bringing inflation down, and thats why they dont even mention "soft landing". If they are successful in wrestling inflation, a recession is all but guaranteed. What the Fed does is somewhat irrelevant, but the Feds are for sure as aggressive as other central banks in their stance against inflation now. ECB may be different as its hugely complicated by the Ukraine war.
Anyone who is 40 years or younger have NOT really "experienced" what proper interest rate level is like in their lifetime. I will go as far as saying most of the traders on a trading seat at a bank have not really felt what its like either.
As for whether rates should ever be lower than X% or not, that is simply a number one picks out of thin air. At the time, drastic condition requires drastic measure to counter. Fighting inflation now is much "easier" than fighting deflation if the damage was not contained at the time.
The one thing central banks did wrong for sure was thinking inflation will be transitory, they are simply not thinking. That was a wish not logical thinking.

Bill said
The first line of BoC's updated outlook cited above indicates their January inflation forecast has already proven to be wrong, so I'd take their relatively upbeat forecasts for later this year and on into 2024 with an even larger grain of salt.

Now, why would that January forecast end up being wrong?

Could something major have happened the following month? Something in Ukraine? Some artificial supply disruption, like an embargo of oil and gas?

Norman1 said
Bank of Canada's thoughts on rates in the future from their opening April 13 press conference remarks:

We also discussed where rates might end up—how high will they need to go? I know many Canadians have the same question. So let me share the Governing Council’s thinking.

Canadians should expect interest rates to continue to rise toward more normal settings. By more normal we mean within the range we consider for a neutral rate of interest that neither stimulates nor weighs on the economy. The neutral interest rate isn’t something we can measure directly. We have to estimate it. And our estimate is between 2% and 3%. Today we raised the policy rate to 1%, still well below neutral. This is also below the pre-pandemic policy rate of 1.75%.

It is important to remember that we have an inflation target, not an interest rate target. This means Governing Council is not on autopilot to a pre-set destination for the policy interest rate. How high rates go will depend on how the economy responds and how the outlook for inflation evolves.

The economy has entered this period of excess demand with considerable momentum and high inflation, and we are committed to getting inflation back to target. If demand responds quickly to higher rates and inflationary pressures moderate, it may be appropriate to pause our tightening once we get closer to the neutral rate and take stock. On the other hand, we may need to take rates modestly above neutral for a period to bring demand and supply back into balance and inflation back to target.

  

There is no meat in that statement unfortunately. It’s just saying the obvious. It’s the same as saying ‘when you flip a coin, if it’s not the head, then it will be the tail”…

savemoresaveoften:

You've said both that:

Anyone who is 40 years or younger have NOT really "experienced" what proper interest rate level is like in their lifetime. I will go as far as saying most of the traders on a trading seat at a bank have not really felt what its like either.

and:

As for whether rates should ever be lower than X% or not, that is simply a number one picks out of thin air.

You're at risk of contradiction with "proper interest rate" and the last sentence. As others note along with us, the basic idea of our economic management is to adjust its parameters to (hopefully) promote the goals we select. Then the buyers, sellers and regulators try to adjust as needed when the results arrive.

If a natural disaster, supply problems or wars pop up unforseen, we adjust as best we can. Hari Seldon* isn't born yet.
RetireEd

(applause to the first to get the reference)

I was a teen when I read Foundation Trilogy, is that it? (I didn't google.)

savemoresaveoften said

There is no meat in that statement unfortunately. It’s just saying the obvious. It’s the same as saying ‘when you flip a coin, if it’s not the head, then it will be the tail”…  

There actually is quite a bit of substance. Just not visible to those looking for recession or fictitious inflation fighting.

The expected neutral policy rate is disclosed. Somewhere between 2% and 3%. So, no actual inflation fighting is expected to start until policy rate reaches at least 2% or as high as 3%.

Also missed from the post before was nothing needs to be done about inflation right now. Bank of Canada is expecting inflation to take care of itself by middle of next year. No need to hike rates excessively and induce a needless recession to deal with inflation.