The US hikes rates

Stop us if you’ve heard this before: A central bank chair walks into a conference hall and delivers an interest rate hike…

What’s happening: The US Federal Reserve raised interest rates by 0.25 of a percentage point, the first “normal-sized” hike since starting to bump up rates last March, up to 4.75%. Though the hikes are getting smaller, the Fed says it’s still dead set on wrangling inflation. 

  • Experts predict that the Fed won’t slow its roll completely and that at least two more 0.25% rate hikes are on the way in March and April, respectively.

Europe is in a similar boat ahead of the European Central Bank’s decision today. A new reading projected eurozone inflation dropped to 8.5% in January, but that likely won’t affect the region’s ensuing rate hikes. The bank remains focused on tackling sticky core inflation

In Canada: Unlike its central bank counterparts around the world, the Bank of Canada (BoC) is putting rate hikes to bed until further notice. It will likely stick with a 4.5% base rate through 2023 on the belief that Canadian headline inflation will fall to 2.6% by year’s end. 

Why it matters: Canada’s hardly in the clear. One Desjardins economist told Storeys that major rate differentials (between the US) could lead to capital flowing out of Canada into the US because of the higher interest rates, causing a depreciation of the Canadian dollar. 

  • A weaker dollar would make it costlier to import goods from the US (where we get a lot of stuff from, particularly food) and ratchet inflation back up in Canada. 

Bottom line: As more inflation-related data rolls in over the coming months, we’ll gain a clearer picture of how far foreign central banks will go and the effects on things at home.