Bank of Canada prematurely hikes interest rates underestimating potential damage to employment

The Bank of Canada announced a further 25 basis point increase in the bank rate despite the fact that unemployment is still above 6 % and there is absolutely no evidence of inflationary pressure in the economy. Whatever rise in petroleum prices is due to supply interruptions due to the Texas hurricane damage which higher interest rates can do nothing about. The Bank and the Minister are taking a significant risk in prematurely hiking the rate thereby sending a signal to consumers, borrowers and investors that a slowdown is coming. Its a signal we can do without. The hike is based upon a false theory that believes that inflation is inevitable in both the global and Canadian economy. It ignores the real possibility that we are living in  a different world era characterized by increased global competition, just in time production and widespread infrastructure deficits and  insufficiency of aggregate demand. In such an environment low inflation -the current rate is just  1.2 % in Canada-may persist a very long time.

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About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
This entry was posted in Canada, free trade and globalization, monetary policy, Uncategorized, unemployment and tagged , , . Bookmark the permalink.

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