The Bank Of Canada's Interest Rate Hike Could Cause A Recession & It's Happened Before
It has lead to a recession three times since 1961!
New research says Canada might find itself in another recession if the Bank of Canada keeps hiking up the interest rate in response to inflation.
Why? Well, it's happened before.
According to a new study by the Canadian Centre for Policy Alternatives (CCPA), every other time in modern Canadian history the Bank of Canada has combated inflation by upping interest rates, it's been followed by a recession.
And that's happening right now with the goal of bringing inflation down to 2% from the May high of 7.7%.
To try to bring this rate down to a more manageable level, the Bank of Canada has raised the prime interest rate multiple times in the last few months, bringing the interest rate up to 1.5%.
Not only that, but it has committed to more hikes within the year.
The instances that they've tried the same strategy to reduce inflation since 1961 were in 1974-76, 1981-83, 1991-92, and each time it led to a recession.
"If a pilot told me that they’d only ever attempted a particular landing three times in the past 60 years with a 0% success rate," said David Macdonald, a senior economist with the CCPA. "That’s not a plane I’d want to be on."
The report also points out that historically when the inflation rate has fallen, so has the employment rate.
If the Bank of Canada were to meet that 2% inflation target, it could mean a hit to the employment rate of 2.7%.
This equates to almost 850,000 Canadians losing their jobs. In 1981-83, Canada even saw a decrease of 4.2%, which in 2022 could mean 1.3 million Canadians out of work.
"It’s time for a new policy on inflation that isn’t just 'jack up interest rates.' That old approach will drive us right back into another recession." said Macdonald.
Economic fears have been recently quite rampant for a lot of Canadians, with some homeowners even worrying about having to sell their homes if the interest rate were to increase anymore.
Add in the soaring prices of essentials like food, gas and housing, and it's looking like more of an expensive time for Canadians across the nation.