Unemployment remains near a record low and consumer spending is holding up relatively well in the face of higher prices and rising borrowing costs
at higher rates and nervous shoppers cut back on non-essential purchases. A pair of Bank of Canada surveys published last week found that the majority of businesses and consumers expect a recession in the next year. The central bank itself is forecasting that the economy will stall through the first half of 2023, posting near zero growth.
Most Fed officials indicated in December that they expect the policy rate will exceed 5 per cent by the end of 2023. However, traders and investors have begun to doubt the U.S. central bank will get that far. Financial markets are pricing a terminal policy rate of 4.75 per cent to 5 per cent. The strength of the labour market presents a particular challenge for the central bank. Canada added 104,000 jobs in December, and the unemployment rate dropped to 5 per cent, only slightly above a record low of 4.9 per cent reached last summer.
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