Before reading Bank of Canada tea leaves, be sure the pot has boiled
OTTAWA — Amid all the hullabaloo over when, not if, the Bank of Canada will continue cranking up the country’s key borrowing level, there is perhaps a lesson for economists, investors and the media alike: Don’t try reading too much into the tea leaves before the pot has boiled.
In fact, the upcoming rate decision — will they go higher (most likely), or will they stay (now less of an option) — has become the only story in town.
And so the bank should be the steel-eyed focus for the country, given the impact that monetary policy makers have on the economy. Negotiations on rewriting the North American Free Trade Agreement can wait, for now. But not too long.
On Wednesday, Governor Stephen Poloz and his monetary policy team will bring down their decision on where to go with the trendsetting interest rate, and bank watchers are overwhelmingly favouring a 25-basis-point hike to 1.25 per cent. A couple more increases are likely on the way for this year.
The U.S. Federal Reserve, as well, is pencilling in a few additional upward movements in lending costs in 2018 — under the new leadership of Jeremy Powell, appointed by President Donald Trump, who will soon be taking over the reins with the departure of chair Janet Yellen.
The Trump presidency makes economic forecasts more iffy than in previous years.
Even so, both Canada and the U.S. are coming off strong economic growth in 2017, and both are likely to see a moderation in the pace of expansion this year as rates edge higher and gross domestic output settles into a similar pace.
This much we know.
But there are always outliers in the forecasting game — how better to grab the attention of readers and investors? Still, only rarely do these analysts attract a big crowd. That’s because they are, more often than not, slightly off the forecasting grid.