, keeping the door open for more hikes as it pushed back inflation’s return to its 2 per cent target.
Macklem said officials ultimately decided to raise borrowing costs because “the cost of delaying action was larger than the benefit of waiting,” adding that the bank is prepared to hike rates further “if new information suggests we need to do more.” Swaps traders, however, upped their bets for a follow-up hike at the bank’s next meeting on Sept. 6, putting the odds at a little less than a coin flip.
Upward revisions to consumption mean Canada’s economy will end up averaging about 1 per cent growth in the second half of this year and first half of 2024, according to the bank’s new forecasts. Officials now predict the output gap will close nine months later than previously anticipated, early next year. At his press conference, Macklem confirmed policymakers don’t expect a recession.
Macklem and his officials remain “concerned that progress towards the 2 per cent target could stall, jeopardizing the return to price stability.” They said they will be closely watching excess demand, inflation expectations, wage growth and corporate pricing behavior as they weigh their next moves. Policymakers see a tight labour market, accumulated household savings, pent-up demand for services, government spending and strong population growth from higher levels of immigration as key factors supporting unexpectedly strong household spending in the first half of the year.
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