Bank of Canada sticks with rate hike pause despite job surge

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Bank of Canada governor Tiff Macklem is sticking with his plan to pause interest rates increases, despite evidence the economy ended the year much stronger than the central bank expected.

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“We’re still a long way from our inflation target, but recent developments have reinforced our confidence that inflation is coming down,” Macklem said in prepared testimony for the House finance committee on Feb. 16.

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The most recent development was Statistics Canada’s estimate of hiring in January. The agency reported Feb. 10 that employers added 150,000 workers in January, far more than anyone expected, including the central bank, which had updated its forecasts that month with a prediction that economic growth would effectively stall at the start of the year.

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With the jobless rate at five per cent, a figure that many economists equate with maximum employment, it’s hard to believe that Canada’s economy is in any imminent danger, and might even be growing fast enough to keep upward pressure on inflation.

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Several economist said after the latest job numbers that Macklem’s pledge to stop raising interest rates in March — assuming inflation continued on a downward trajectory — might have been hasty, given outsized hiring should continue to support demand.

The Bank of Canada’s next policy announcement is March 8, and the governor made his conditional pledge to pause interest rates increases on Jan. 25, when it lifted the benchmark rate a quarter point to 4.5 per cent, extending the most aggressive series of rate hikes in the central bank’s history.

It would take a lot for the governor to back down on such an explicit promise after only a couple of months. But Macklem did make of point of emphasizing the conditional nature of his guidance in January, giving himself flexibility to resume raising rates in the spring or summer.

“This is a conditional pause — it is conditional on economic developments evolving broadly in line with our forecast,” Macklem said.

• Email: kcarmichael@postmedia.com | Twitter: carmichaelkevin