Notes From the Desk: Two for One Special – Bank of Canada and US CPI
Bank of Canada Rate Announcement.
The Bank of Canada (BoC) raised the overnight by 25 bps, bringing it to 5%.
- The Bank pointed to evidence of persistence in excess demand and core inflation as the rationale for the hike.
- They also extended the timeline for inflation to fall to 2% by six months.
- The BoC is worried that sticky inflation could lead to a permanent increase in inflation expectations and is keeping the door open for further rate hikes if necessary.
With the market expecting today’s hike, domestic yields have moved lower in hopes that the BoC hiking cycle has come to an end.
US Inflation.
June CPI came in weaker than expected.
- Headline 3% vs 3.1% expected.
- Core 4.8% vs 5% expected.
- The Federal Reserve (Fed) will be happy to see inflation pressures subsiding in both goods and services.
- Core services excluding shelter prices, declined by 0.1% in the month, a sign that the cumulative rate hikes are starting to dampen demand.
- Although the data is not good enough to stop the Federal Reserve from hiking later this month, the odds that it will be the last hike for this cycle are increasing.
Treasury yields have moved lower in response to the possibility that the Fed’s work is nearly done.
