US and Canadian central banks will continue rate hikes

After the softer-than-expected US consumer price index (aka inflation) and producer price index led to stock markets’ rally of over 6% last week, the markets started to weigh in on the possibility of the US central bank slowing the interest rate hike speed or maybe even start cutting faster than expected.

 

The Fed officials, however, continued to reiterate that financial market stability risks should not be a priority and that the US central bank has the mandate to lower the inflation back to its historical 2% target. Some analysts believe that the central banks around the work including US and Canada should be considering higher targets for the foreseeable future as inflation components including food, energy, and shelter are stickier than before.

 

Canada"s Inflation report for October on Wednesday showed the rate steady at 6.9% annually and increased by 0.7% during October. The figure was in line with economists" expectations and will leave very little room for the Bank of Canada to give up on their interest rate increase. The BoC is expected to increase the policy rate by another 0.5% in their next meeting to 4.25%. The biggest difference between Canada and US when it comes to increasing interest rates is the higher sensitivity of the housing market in Canada to higher rates.