The tighten momentary policy in order to slow

The article
discusses how the Canadian unemployment rate fell again in December leading to
the 13th consecutive month of job growth. This low rate of 5.7%
makes it more likely that banks will increase interest rates. This fall in
unemployment indicates that the Canadian economy is expanding. As a result, it
is anticipated that the bank will tighten momentary policy in order to slow
down the economy. Ratner explains how the market is currently anticipating
three rate hikes to occur in 2018. The article also addresses that a rate hike
is not guaranteed due to the ambiguity surrounding NAFTA and trade. In
addition, the timing of this rate hike will depend on the results from the
Business Outlook Survey. If the results indicate an expanding economy the Bank
of Canada will increase rates sooner.

 

This article
directly relates to our discussions in class. When the economy expands the Bank
of Canada is concerned that inflation will begin to increase at high rates. As
addressed in lecture, high inflation leads to uncertainty in the financial
system and reduces the purchasing power for those on fixed incomes. As a result,
the bank is attempting to slow down the economy. To do this they are using a
technique called monetary policy. Monetary policy is an approach used by the
central bank to influence economic performance. By increasing interest rates
the Bank of Canada will be tightening monetary policy. This will make borrowing
money more expensive, which will shrink the money supply. Therefore, the
economy will slow down allowing for inflation to be controlled. We discussed
this system of tightening the monetary policy in depth during class and the effects
of high inflation on the economy. As a result, the article connects directly to
topics explored in lecture.