Bank of Canada minutes on immediate rate hike: “the economy remained clearly in excess demand and that the rebalancing of supply and demand was likely to take longer than previously expected.” “members felt that enough data had accumulated to convince them that more restrictive policy was needed.”

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Source: https://www.bankofcanada.ca/2023/06/summary-governing-council-deliberations-fixed-announcement-date-june-7-2023/

Highlights:

  • “the economy remained clearly in excess demand and that the rebalancing of supply and demand was likely to take longer than previously expected.”
  • “members felt that enough data had accumulated to convince them that more restrictive policy was needed.”
  • Growth of gross domestic product (GDP) in the first quarter was 3.1%, above the Bank’s expectations of 2.3%.
  • Consumption growth was surprisingly strong, coming in at 5.8%, with strength not only in services but also in goods sensitive to interest rates, such as automobiles, furnishings and other household products.
  • “wage growth remained elevated across a variety of sectors and above rates that would be consistent with the 2% inflation target, absent a substantial increase in productivity.”
  • Despite higher interest rates, consumer demand was proving more robust than Governing Council had expected.
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TLDRS:

  • There was a debate over whether to increase the rate immediately or to signal a likely increase in the future. They decided to increase the target for the overnight rate to 4¾% and continue to assess the need for further increases based on incoming data.
  • They did the opposite of JPow and the Fed.