We've lifted our year-end forecasts for Federal Reserve and Bank of Canada policy rates by 25 bps to the 3.25%-to-3.50% range. This was in response to stubbornly high CPI inflation readings on both sides of the border and the FOMC’s more hawkish-toned policy pronouncements on June 15. We look for them to hold rates at their 2022-end levels through next year to ensure that inflation does indeed recede.
Both U.S. and Canadian real GDP growth are now expected to grind to a near-halt compared to running in the low/mid-1% range before. In eliciting extra central bank tightening and eroding even more purchasing power, stubborn inflation is causing additional growth headwinds against a background of sagging markets and consumer confidence. The risks of the Fed and BoC having to hike rates to even higher levels because inflation fails to fall sufficiently are now roughly balanced against the risks of both central banks cutting rates next year. (The latter would pull forward our forecast for 100 bps worth of easing in 2024.) - BMO Capital Markets
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