Ed joined BNN Bloomberg this morning to give his thoughts on the latest CPI data. His initial reaction to inflation readings was that it was as expected, and that the key is to look at the trend. While he noted that inflation is “stubbornly” above the target rate, Ed was somewhat optimistic about inflation falling in the long term. He went on to say that the next 3-9 months will be very important in revealing how far interest rate hikes will go. Ed stated his belief that central banks will go a bit too far with hikes in order to manage inflation expectations. Ed predicted that we will see a recession, though he emphasized that it might not necessarily be a severe one, in part because higher rates now leaves room for cuts in the future. While Ed thought Canada’s housing market may be a little more inflated than the US, he said that the lengthy periods of low rates generally had led to and high debt accumulation and high , interest rate sensitivity amongst all G7 nations.
Ed also predicted that the Bank of Canada will hike rates by 25-50 basis points in December. He was surprised that the previous rate hike was only 50 points instead of 75, and speculated that the Bank may have been signally that it was approaching the end of the cycle of rate hikes. Central banks have had a consistent message, and will keep talking tough to help break inflation expectations. All central banks are signalling that rate hikes are slowing. Which should be followed by a pause, and eventually cuts. Ed emphasized that he does not think the “pause” phase will be as long as people think, and that cuts will come sooner. Ed expects interest rate cuts in the second half of next year, but there is still a lot of uncertainty.