Central banks talk about inflation, but are they losing credibility when interest rates don't budge?

Both the Bank of Canada and the U.S. Federal Reserve say they are really, really going to raise interest rates very, very soon.

But in separate news conferences on Wednesday they made it clear that neither of them are ready to do it just yet.

With the Canadian dollar surging above 80 cents US last week, there were a lot of people convinced that Tiff Macklem, governor of the Bank of Canada, was going to move first and hike rates this week. He didn't. 

The delay in a Canadian rate hike that so many had expected was described by one analyst as a "policy misstep" that could fan the flames of inflation and the housing market. 

A reporter at the Wednesday news conference asked Macklem if he had lost the confidence of Canadians after his predictions about inflation proved wrong.

But rather than taking radical market-moving action, both Macklem and his counterpart at the U.S. Federal Reserve, Jerome Powell, acted in a way that seemed intended to broadcast a loud "remain calm." And both focused on the strength of the North American economy. 

Wild swings in global share markets seemed to show traders were convinced Powell was going to make a significant announcement of his own. With few exceptions, Powell just reiterated the Fed's plan that he previously announced in December.

While Powell nodded to the recent market turmoil with a reference to "financial stability," he said it didn't worry him because banks, businesses and households were in excellent shape. Central bankers insist their actions are solely focused on those kinds of measures, known as the real economy. When they talk at all about short-term swings in currency or security markets, they like to say it is not their job to consider such things.

While Macklem may not like to talk about the loonie, people as savvy as the governor's advisers at the Bank of Canada understand the economic impact of a rising Canadian dollar on trade if Canada starts raising interest rates too much in advance of the United States. That may have left the impression that Macklem is waiting to be sure that the Fed is actually planning to hike before making a move of his own.

But of course, that was not the reason Macklem gave for a delay. In fact, he said it was not a delay, merely a chance to give Canadians full warning that rate hikes are on the way, and he hopes they will not damage Canada's strong economy. He also mentioned ongoing uncertainty about the effects of Omicron. 

Despite the lingering pandemic, one of the most important indicators of strength in both Canada and the United States was the startling health of the job market.

While some parts of the Canadian economy such those that depend on tourism may not feel it yet, said Senior Deputy Governor Carolyn Rogers, who appeared at Wednesday's monetary policy announcement for the first time since her appointment last year, evidence from the country as a whole was overwhelmingly positive.

"We look at a broad range of indicators and overall what we observed is that employment participation rates are back up to near pre-pandemic levels, there's pressure on wages, and employers are having a hard time finding employees for a high level of vacancies," Rogers told reporters at Wednesday's news conference.

"So in total, those things say to us that the labour market is tightening and slack is absorbed," she said.