Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Does the Bank of Canada Want a Recession? RBC, BMO Bankers Think So

Economic Indicators Sep 22, 2022 12:51
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters
 
BMO
+0.61%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
RY
+0.40%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Ketki Saxena 

Investing.com -- Earl Davis, chief of fixed Income and money markets at BMO (TSX:BMO) Global Asset Management became the latest banker to chime in on the likely unavoidability of a recession in Canada, as interest rates still have a long way to go before inflation is back to its two percent target. 

Davis believes that “The likelihood of a recession is 99.99%” in Canada, and interestingly, that “Central bankers actually want a recession.” 

 “It may end up being a policy mistake. But the playbook says you have to get a recession” in order to cool an overheated economy and bring inflation back to target. He also disagreed with calls from economists, for example at RBC (TSX:RY) and Desjardins, who have been calling for a “mild” recession, because unlike past hiking cycles such as in 2018, the Federal Reserve and other central banks are far behind the inflation curve -- and rates will have to stay higher for longer to cut demand. 

He isn’t the only major BMO banker to believe a recession is necessary and in fact the goal of the Canadian central bank. Immediately following the Bank of Canada’s 75 bp hike in early September, a similar sentiment was voiced Benjamin Reitzes, managing director, Canadian rates & macro strategist, BMO Capital Markets. 

Reitzes noted that “The Bank still expects growth to slow in H2, with tighter policy having an impact. Indeed, policymakers want to see a few quarters of below-potential growth and some loosening of labour market conditions before they’ll be more comfortable with the inflation outlook.”

Josh Nye, senior economist at RBC Economics, also voiced his belief at the time that “The Bank’s expectation that growth will moderate in the second half of the year [is] a slowdown that’s needed to bring demand more in line with supply.” 

The Bank of Canada’s goal at this stage, in order to tame inflation, is to slow economic growth, cool an overheated housing market, temper a still robust job market to cap wage growth, and prevent a wage-price spiral. But does the Canadian Central Bank intend to cause a recession? 

The BoC - in stark contrast to private sector economists - continues to believe that a recession is avoidable in Canada, and insists that a soft landing remains possible in Canada. However, if the choice is between stabilizing price growth, or triggering a downturn, the Canadian central bank remains committed to bringing inflation back to target, even at the cost of a recession. 

Does the Bank of Canada Want a Recession? RBC, BMO Bankers Think So
 

Related Articles

Canadian Markets: The Week Ahead Calendar
Canadian Markets: The Week Ahead Calendar By Investing.com - Sep 26, 2022 1

By Ketki Saxena Investing.com - The Week Ahead Calendar ​​Monday, September 26: In Canadian Economics: Wholesale Sales (MoM Flash Estimate) TSX Earnings: :Sprott Physical Gold...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email