The article discusses the Bank of Canada’s recent decision to end quantitative easing (QE) and raise interest rates due to higher inflation. Here are some key points from the article:
- Interest Rate Hike Forecast: The Bank of Canada has raised its forecast for when it will start raising interest rates, citing faster-than-expected economic growth and rising inflation.
- End of QE: The central bank has ended its quantitative easing program, which was implemented to stimulate the economy during the COVID-19 pandemic.
- Inflation Concerns: Inflation is higher than expected, with a forecast of 4.8% over four quarters, which is above the Bank’s target of 2%.
- Output Gap Closure: The output gap, which measures the difference between actual and potential economic output, is closing faster than expected.
- Capacity Constraints: The economy’s productive capacity is limited by shortages of manufacturing inputs, transportation bottlenecks, and difficulties matching jobs to workers.
- Inflation Target: The Bank’s inflation target remains at 2%, but it has raised its forecast for when inflation will return to target, now expecting it to happen in the fourth quarter of 2022.
The article also quotes Governor Tiff Macklem, who emphasizes the importance of bringing inflation back to target and notes that the central bank is willing to adjust its policy settings if necessary.
