The outcome will still be the same. Both the US Federal Reserve and the Bank of Canada will be passing through the rate hike door over the next few quarters as diminishing slack obviates the need for ultra-ultra-low yields. But changes in tactics on each side of the 49th parallel have altered the picture of who among Yellen and Poloz will go next, and it’s no longer the case of ladies first.
Stateside, we’re sticking to our view that the Fed still has another quarter point hike to go in 2017, with a follow on 50 basis points of total hikes come 2018. Sure, wages have softened up a bit, and PCE inflation isn’t pressing yet. But as we recently noted (See “It’s the Jobs, Stupid, Economic Insights, June 12), other signs of a tightening labour market are more than sufficient to suggest that the US economy can live with higher rates.