Kevin Carmichael: 3 things Bank of Canada subtly told us about interest rates in March minutes via financialpost
Canada’s central bankers also observed that they must contend with a vulnerability the U.S. doesn’t have: high levels of household debt. American households are nowhere near as leveraged as they were a decade ago. Canadians, on the other hand, spent the the years since the Great Recession on an epic mortgage binge while chasing runaway housing prices. All debt represents a risk to the financial system and a headwind to growth because debt servicing costs have surged.
“More elevated levels of household debt and differences in the structure of the mortgage market mean that demand in Canada could be more sensitive to higher interest rates,” the summary said.Policymakers tend to demure when asked to pinpoint the level of employment they associate with an economy that’s running too hot.
They were surprised that the most aggressive series of interest rate hikes in the Bank of Canada’s history hadn’t done more to cool hiring. “While the bank had expected to see some easing in labour market conditions, recent data suggest that the degree of tightness has not substantially changed over the past six months,” the summary said.Article contentPhoto by Dax Melmer/Windsor Starin February, after hiring about 150,000 in January and about 69,000 in December.
Governing Council debated whether increases in employment were from demand or supply, but if members concluded anything, the Bank of Canada opted against sharing it in the summary. The omission might suggest they don’t know why unemployment is now at a record low, even thoughPolicymakers noted that government spending was stronger than they had anticipated in the fourth quarter. If politicians keep it up, interest rates might need to rise to offset the additional demand.
“Governing Council also noted that, at 3.9 per cent, growth in government spending in the fourth quarter was stronger than expected,” the summary said. “They observed that sustained growth in government spending that is considerably faster than potential growth would boost domestic demand. The bank will incorporate announced fiscal plans by federal and provincial governments into its updated projection in the next MPR on April 12.
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