Bank of Canada Governor Tiff Macklem shared insights into the economic outlook for 2024, hinting that the first part of the year "is not going to feel good." Macklem predicts a year of transition for the Canadian economy, with potential interest rate adjustments and ongoing battles with inflation.
Macklem acknowledged that interest rates might come down at some point in 2024, aligning with economists' projections for rate cuts in the second or third quarter of the year. However, he refrained from providing a specific timeline, emphasizing the central bank's focus on core inflation. Macklem stated that sustained downward momentum in core inflation is necessary before any interest rate cuts take place.
The Bank of Canada began increasing interest rates in March 2022 to curb inflation, which had peaked at 8.1 percent in June 2022. Despite the steady decline to 3.1 percent in October, the central bank has maintained its benchmark rate at five percent in the last three rate-setting decisions. Macklem expressed confidence in the effectiveness of the bank's approach, indicating progress toward the target of two percent inflation.
Nevertheless, Macklem anticipates economic challenges in the near term, describing 2024 as a "year of transition." He acknowledged that the initial part of the year might be challenging but emphasized the potential for growth and decreasing inflation as the year progresses.
Macklem ruled out the possibility of interest rates reverting to pre-COVID-19 levels, citing the unprecedented period of low rates post-global financial crisis. While he believes rates will come down, he anticipates they won't reach the extremely low levels seen before the pandemic, signaling an adjustment for the economy.
Addressing concerns about a potential recession due to interest rate hikes, Macklem expressed confidence in a soft landing. He stated that achieving the target of two percent inflation doesn't necessitate a deep recession and asserted that even if there are small negatives in economic growth, it won't lead to a significant downturn.
The governor's cautious optimism stems from the belief that the Bank of Canada's monetary policy is effective in navigating the economic landscape. As the country awaits November's inflation data, Macklem's interview provides valuable insights into the challenges and expectations for the Canadian economy in the first part of 2024.
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