February 28, 2023
Recent economic data in the U.S. are setting up the Federal Reserve to likely keep interest rates in the United States higher for longer, posing a dilemma for the Bank of Canada, a report from BMO Capital Markets says.
Financial markets are pricing in at least three more quarter-point hikes from the U.S. central bank, which would take its terminal rate range to 5.25 per cent to 5.50 per cent. Expectations for Fed hikes rose after the U.S. central bank’s preferred inflation measure came in stronger than expected on Friday, the latest in a string of data showing that economy is still running hot.
“The re-re-pricing on the Fed outlook has given the U.S. dollar yet another charge. After retreating steadily from the 20-year high hit last fall, the greenback has snapped back up since early February lows to reach its highest levels of 2023,” Doug Porter, chief economist at BMO, wrote in a client note on Friday.
