Bank of Canada's Macklem talks down interest rate cuts, but says 2% inflation 'now in sight'

financialpost.com:

Cutting the Bank of Canada’s policy interest rate doesn’t seem to be top of mind for governor Tiff Macklem, who said Dec. 15 that it’s still too early to consider undoing the most aggressive series of rate hikes in decades. Macklem made the remarks while delivering his end-of-year speech before the Canadian Club Toronto on Friday, two days after United States Federal Reserve chair Jerome Powell poured fuel on a stock market rally by suggesting that rates were at or close to their peak. The Financial Post’s Denise Paglinawan breaks down what you need to know about Macklem’s speech.

Despite widespread predictions that the Bank of Canada will start cutting interest rates next year, Macklem said that until the central bank sees evidence that Canada is clearly on a path back to two per cent inflation, cuts are off the table. Macklem said the central bank doesn’t need to wait until inflation is all the way back to that target to consider easing policy, but it does need to be clearly headed to two per cent. “When it’s clear that inflation is on a sustained downward track, we can begin discussing lowering our policy interest rate,” he said. “We have not started having that discussion, because it’s too early to have that discussion. We’re still discussing whether we’ve raised interest rates enough and how long they need to stay where they are.”

Macklem said the excess demand that drove prices higher over the past two years is now gone. Higher interest rates and tighter global financial conditions have helped rebalance the economy, he said. With growth subdued and the cost of living still increasing too quickly, Macklem forecast the next two to three quarters will be difficult for many. He said consumers will continue to hold back