The Bank of Canada is warning Canadians to brace for a rough winter
CBC
For years now, central banks around the world have helped consumers and businesses weather economic storms. In crisis after crisis, they cut interest rates to help people get through. They printed money and bought bonds to prop up markets.
This time, those same banks are actively making life more difficult.
"I'm sure some of this does feel a bit counterintuitive," said Bank of Canada governor Tiff Macklem.
The Bank of Canada has raised interest rates six times since March. Rates have shot up from 0.25 per cent to 3.75 per cent. And the bank has warned it's not done yet.
"We do think we still need to raise rates a little bit further," Macklem told CBC News in an interview this week. "How far, we will see."
WATCH | Tiff Macklem says Canadians should expect rough months ahead:
The bank is raising rates now to rein in inflation that has reached its highest level in decades. Increasing rates is expected to slow the economy. So, Canadians who are already struggling to keep up with the rising cost of living are now facing higher borrowing costs. And those higher borrowing costs will drive down the economy.
"We actually think growth is going to be close to zero for the next few quarters, until about the middle of next year," said Macklem.
He says that slowdown in economic activity should be short and not very deep. But it will have an impact.
"(The) unemployment rate is going to go up. We're not talking about high unemployment rates that we've seen in past recessions, but it is going to go up," he said.
Macklem says he understands how Canadians are feeling.
"People are frustrated. They feel helpless," he said.
Canadian consumers aren't the only ones who are frustrated. Economist Jim Stanford from the Canadian Centre for Policy Alternatives says the central bank has pushed rates too high, too quickly. Central banks around the world are looking at the current state of inflation, he said, and assuming both the cause and the solution are the same as the last inflation crisis in the 1970s and 80s.
"Policymakers at the Bank of Canada and the government and academia, I think, are unduly obsessed with what happened in the 1970s. It's like a nightmare," Stanford said in an interview with CBC News.
