Governments should be bracing for a recession with interest rates elevated: John Manley

As the Bank of Canada resumed its cycle of interest rate hikes, a former federal finance minister said governments should be looking for policy options to help guide Canada to a “soft landing” with the possibility of a downturn ahead.

After holding rates steady for five months, the central bank went against economists’ expectations and raised interest rates a quarter of a percentage point to 4.75 per cent on Wednesday in response to strong economic data, including a recent uptick in inflation.

John Manley, a former federal finance minister and now senior advisor at Bennett Jones, told BNN Bloomberg that as the Bank of Canada’s battle to bring inflation back to two per cent continues, governments should keep in mind that “every time there has been a sharp decrease in inflation engineered by monetary policy, there has been a recession.”

“In the minds of the politicians, they‘ve got to start thinking now, ‘How do we make sure if there’s a recession coming that it’s a relatively soft landing,” Manley said in a television interview on Wednesday.