Interest rates

Pattie Lovett-Reid: Raising Interest Rates

Canadians are frustrated as we enter the third calendar year of the pandemic.

Lockdowns, restrictions, higher prices for just about everything; and, if that is not enough, there is also an increasing number of absences from the workplace due to higher infection levels and, of course, school closures.

Our physical and mental health is deteriorating and for many the situation goes beyond a perfect storm that is brewing. Many probably feel like their homes are in the middle of an out of control tornado. Any of these challenges would be difficult, however, combined they wreak havoc on just about every element of our lives.

Unfortunately, this feeling is not unique to Canadians alone. Recent data from the United States indicates that inflation rose seven percent in December year-over-year – the highest level since 1982.

Some are hoping this is the peak and it just might be, but such a high number is still a concern.

During the confirmation hearing with US Federal Reserve Chairman Jerome Powell, he stressed that higher inflation is an obstacle to achieving maximum employment and that higher rates will create stability and allow more Americans to get jobs.

It makes sense to me.

You must believe the same is true here in Canada. In a recent survey conducted by

Nanos Research Group for Bloomberg News, nearly nine in ten Canadians said the spike in prices is more of a concern than rising interest rates.

Does the Bank of Canada need more encouragement from Canadians to start raising rates?

Royal Bank of Canada CEO Dave McKay echoed Canadians’ approval of the higher rates, telling Bloomberg News: “We need quick action this spring as a series of rate increases is aimed at [permanent sustained inflation]. “

Currently, the market is anticipating five rate hikes this year by the Bank of Canada. I say bring them.

Would higher rates be such a bad thing? I do not think so. The Bank of Canada’s current rate is 0.25% and could reach around 1.5% in 2022, a paltry figure compared to inflation north of 5%.

Ironically, switching to rates would put more money in your pocket.

Our economy may have ended 2021 on a high note, however, with the recent Omicron outbreak, the service sector will be hit again in terms of activity and employment, absenteeism and school closures. will weigh on our economic growth in the first quarter.

If we can finally take a break, restrictions and infections could ease in February and we all hope this setback is just another detour on the road to recovery.

The optimist in me thinks inflation is nearing its peak and higher rates could help balance the housing market as daily spending may start to decline.

Canadians are tired and overwhelmed. We keep our fingers crossed that there is light and relief, even if it goes through higher rates, at the end of this very long tunnel.