In this interview with BNN, Ed Devlin discussed the Bank of Canada’s current approach to interest rates and how the Canadian labour market differs from that of the US.

Ed Devlin began by saying that he believed that Stephen Poloz, Governor of the Bank of Canada, by removing the term “gradual” from their description of interest rate hikes only meant that he wanted to increase the cost of borrowing at the margin. He continued by explaining the relationship between higher interest rates for lower inflation, and justified the lack of an inflation boom during recent periods of low borrowing cost to there having been a recent recession. Although Canada is seeing some inflationary pressure, Ed noted that we were still close to the target inflation rate of 2% and that the Bank of Canada’s measures were in line with trying to align interest rates with a more normal economy, rather than one moving out of recession. He also pointed out that this “hawkish” interest rate hike was a little unexpected given the negative impact of recent declines in the price of oilOverall Ed thought that the Bank of Canada really wanted to slow down lending, particularly risky mortgages, while stabilizing consumption and the housing markets.


Ed made it clear that US President Donald Trump’s complaint that the Federal Reserve’s interest rates were too high will not have any effect because the Fed is very independent. One reason that the US is under inflationary pressure is due to issues such as a mismatch of skills between the labour force and the job market. According to Ed, Canada has not seen the same problems because the banks continued to lend in the wake of the 2008 financial crisis, which kept labour force participation here from crashing. While wage increases in Canada have moderated after picking up, making the Bank of Canada’s rate increase seem a bit precipitous. Ed explained that while he is hesitant to call the housing market a “bubble” at the time, he believes that there was very aggressive mortgage lending that means the Bank of Canada does have to be a bit cautious in raising interest rates lest they cause problems for those with mortgages. He concluded by discussing Canadian consumer debt, stating that while the increase has flattened, debt is still very high relative to global levels largely due to the recent trend of low borrowing costs.