Jul 6, 2023
U.S. and Canadian central banks are 'flying blind': Experts
, BNN Bloomberg
If the U.S. catches a cold, we'll get a sniffle or pneumonia: Rosenberg on Canadian economy
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The Bank of Canada and the U.S. Federal Reserve have both committed to bringing down inflation but some experts are cautioning that their approach is now on shaky ground.
Both central banks have raised rate aggressively in the aftermath of the pandemic in order to tame elevated costs of living, however, their data dependant strategy and the extent to which they have hiked rates is being called into question.
“They don’t seem to have a lot of faith in their models, and they don’t seem to have a lot of confidence in their forecasts,” David Rosenberg, founder and president of Rosenberg Research, told BNN Bloomberg in an interview on Thursday.
Rosenberg stressed that the Fed and the BoC are making interest rate decisions based on backward looking data -- which he argues is risky.
“They’re flying blind,” he said.
Rosenberg also noted that the central banks have been too quick to raise rates without allowing enough time to pass to see how previous hikes may have taken effect on the respected economies.
The Bank of Canada surprised with an interest rate hike in June, while the Fed paused last month but revealed more hikes are likely to take place by the end of year.
“Historically when you take a look at when then Fed pauses, it’s not one particular piece of data — they’ve just realized they’ve done enough, (they) sit, assess for a period of months,” he explained.
“They’ve taken a step away from the predecessors, because normally once you’ve gone this far you stop and assess,” Rosenberg added.
The Bank of Canada for its part hiked rates last month after a brief pause following an uptick in services demand, increased consumer spending and heightened housing activity, it stated in it's latest interest rate decision publication. There was also a rise in the consumer price index in April to 4.4 per cent which was higher than the bank had anticipated.
The consequences will be a recession, Rosenberg warned. He pointed to Fed officials saying as much within the details of its meeting minutes released on Wednesday.
Ed Devlin, founder of Devlin Capital and former head of Canadian portfolio management at PIMCO, agreed that both central banks appear to have lost trust in their models and are navigating unprecedented territory.
“They threw the kitchen sink at it, and we’ve never done that much,” he said.
Ultimately, the monetary policy measures that have been made to curb inflation can be regarded as a necessary evil, he added.
“Does Tiff Macklem or Jerome Powell want to be the one who let the inflation genie out of the bottle? They’d rather go down as the one who caused the recession,” Devlin said.
Both central banks have raised rate aggressively in the aftermath of the pandemic in order to tame elevated costs of living, however, their data dependant strategy and the extent to which they have hiked rates is being called into question.
“They don’t seem to have a lot of faith in their models, and they don’t seem to have a lot of confidence in their forecasts,” David Rosenberg, founder and president of Rosenberg Research, told BNN Bloomberg in an interview on Thursday.
Rosenberg stressed that the Fed and the BoC are making interest rate decisions based on backward looking data -- which he argues is risky.
“They’re flying blind,” he said.
Rosenberg also noted that the central banks have been too quick to raise rates without allowing enough time to pass to see how previous hikes may have taken effect on the respected economies.
The Bank of Canada surprised with an interest rate hike in June, while the Fed paused last month but revealed more hikes are likely to take place by the end of year.
“Historically when you take a look at when then Fed pauses, it’s not one particular piece of data — they’ve just realized they’ve done enough, (they) sit, assess for a period of months,” he explained.
“They’ve taken a step away from the predecessors, because normally once you’ve gone this far you stop and assess,” Rosenberg added.
The Bank of Canada for its part hiked rates last month after a brief pause following an uptick in services demand, increased consumer spending and heightened housing activity, it stated in it's latest interest rate decision publication. There was also a rise in the consumer price index in April to 4.4 per cent which was higher than the bank had anticipated.
The consequences will be a recession, Rosenberg warned. He pointed to Fed officials saying as much within the details of its meeting minutes released on Wednesday.
Ed Devlin, founder of Devlin Capital and former head of Canadian portfolio management at PIMCO, agreed that both central banks appear to have lost trust in their models and are navigating unprecedented territory.
“They threw the kitchen sink at it, and we’ve never done that much,” he said.
Ultimately, the monetary policy measures that have been made to curb inflation can be regarded as a necessary evil, he added.
“Does Tiff Macklem or Jerome Powell want to be the one who let the inflation genie out of the bottle? They’d rather go down as the one who caused the recession,” Devlin said.
