July 18, 2023

How The Bank Of Canada Is Thinking About Interest Rates

Last week the Bank of Canada hiked its policy interest rate to 5%, a 22-year high and a 10x jump from where they sat just over one year ago.

By now, everyone is familiar with the Bank's rationale for aggressively raising rates: It has a mandate to ensure price stability and bring inflation down to a target of 2%.

But how are higher rates actually pushing inflation down? When prices are driven up by supply shocks in Eastern Europe or labour strikes at ports, how much control over inflation does Canada's central bank actually have?

On today's episode, economist and Columbia Business School professor Brett House joins us to explain how the Bank of Canada is thinking about interest rates and inflation today, what factors motivated them to raise rates again last week, and his view on whether we're now entering a new era of persistently higher inflation.