The BOC’s terminology for its 1% interest rate hike calls these big increases “front-loaded.” A massive increase now staves off the need for multiple rate hikes in the future. BOC Governor Macklem has used strong language repeatedly in his messaging and interviews. To “choke off the excess” demand from the economy and help starve inflation, Macklem has vowed that the BOC is willing to go “as far as it needs.” Macklem pointed to tight labour markets, supply chain issues, and strong post-pandemic demand potentially pushing inflation over 8% for a prolonged period. He effectively acknowledged that if Canada has to suffer through a mild recession to excoriate inflation, it will be worth it. A recession would give the underlying economy time to recover, restructure, and plan for longer term productivity to catch up with the strong demand that is fueling inflation.

Macklem also bravely acknowledged that getting inflation back to normal will take a good deal of time, and that it “this is not going to be without some pain.” Finally, he claimed that the potential for a soft landing (brief economic slowdown without recession as rates go up) had “narrowed“, accepting that a difficult recession is now more likely than before. More and more experts see that it is inevitable that rates will continue going up past July. Josh Nye, a senior economist from RBC sees rates hitting 3.25% by October. By the BOC’s own fundamentals, taking interest rates to this level would be actively harmful to economic growth and would slow things down.

RBC ‘front-loaded’ talk of a recession with a report predicting that Canada will go into a recession in 2023 that will be ‘short-lived’ and not as punishing as previous recessions, such as the 07-08 crisis. RBC sees unemployment rising modestly to just over 6.6% with the economy recovering fully by 2024. RBC also expects house prices to fall 10 per cent in the year ahead, subtracting more than $800 billion from household net worth. Like Nye, RBC sees the BOC taking rates to 3.25% by the end of the year.