The first half of 2022 has been tumultuous to say the least. We are in the middle of one of the worst years in decades after 2021 being one of the best the market has seen in quite some time. This whiplash effect is biting us all hard with record inflation and quickly rising interest rates to beat it back. So far this year we have seen .25, .50, .75 base point interest rate increases and with another meeting around the corner we are likely to see a .75-point hike once again.
U.S. inflation is still likely to come down “in coming months,” but the Federal Reserve has “zero patience” and will continue to hike its benchmark interest rate by three-quarters of a percentage point in July and September, said Tom Porcelli, chief U.S. economist at RBC Capital Markets. “A 75-basis-point hike is teed up for July, and there’s a potential for a full 100 [basis point] move, although the Fed doesn’t necessarily want to do that,” Porcelli said. The market is starting to price in another 0.75-percentage-point move in September, he noted, matching a mid-June interest-rate increase that was the most dramatic since 1994.
Canada’s central bank said Wednesday (7/12/2022) it is raising its target interest rate by a full percentage point in an effort to fight inflation — and warned more rate hikes are likely to follow. The Bank of Canada raised the overnight rate to 2.5% in the biggest increase since 1998 and the highest level since 2008. The bank said inflation is higher and more persistent than had been projected and the bank expects it will likely remain around 8% in the next few months. It blamed the war in Ukraine, ongoing supply disruptions and excess demand in Canada. The bank warned that if elevated inflation becomes entrenched, the economic cost of restoring price stability will be higher. “Inflation is too high. And more people are getting more worried that high inflation is here to stay. We cannot let that happen,” Bank of Canada Governor Tiff Macklem said.
Derek Holt, head of capital markets economics at Bank of Nova Scotia
“What I’d emphasize in this regard is that I just can’t accept their depiction of today’s move as being about how ‘the Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today.’ That implies they think they are getting ahead of inflation risk when in reality they are far behind in the fight against inflation. All they have done today is to tiptoe into the neutral policy setting when what Canada needs to counter inflation is something more deeply into restrictive territory. Front-loading would have been like the (Reserve Bank of New Zealand) and (Bank of Korea) did when they began hiking last summer.
“We’re so past any relevant point at which today’s actions can be described as front-loading the response, when a more accurate depiction portrays the BoC in perpetual catch-up mode to inflationary pressures. As a consequence to having misread inflationary impulses last year, Canadians now face heightened economic anxiety because rates are going up by leaps and bounds when earlier and more gradual rate hikes could have nipped some of the inflation risk in the bud and avoided today’s big changes.”
President Biden on Wednesday downplayed the significance of new data showing annual inflation reached its highest level in decades in June, arguing the report was outdated because of recent drops in gas prices.