There are too many variables to determine who is about to endure the roughest ride, CIBC economists say
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Avery Shenfeld and Katherine Judge attempted to figure out which economy is in the most trouble based on past experience. The best they could ascertain is that the road is about to get bumpy for both, as the United States Federal Reserve and the Bank of Canada race to contain inflation with higher interest rates, but there are too many variables to determine who is about to endure the roughest ride.
There’s lots of recession talk because central banks around the world are jacking up interest rates in reaction to the biggest inflation scare since the early 1980s. Year-over-year price increases are around eight per cent in the U.S., and the Federal Reserve has made clear that it’s willing to risk a downturn to get inflation back to its target of two per cent. Because monetary policy is a blunt tool, many Wall Street economists assume a recession is unavoidable.
The Fed’s growth outlook is weaker than that of the Bank of Canada, suggesting that U.S. policymakers reckon they will need higher interest rates to get inflation under control. That might allow Canada to post relatively stronger growth over the next couple of years. “The U.S. seems to need a bigger economic crunch to contain its inflation,” Shenfeld and Judge wrote.
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