We have long-argued that interest rates would rise somewhat faster, and sooner, than markets expecting. Recent comments by Governor Carney offer tentative support to this view and suggest that February’s Inflation Report could strike a more hawkish tone than is anticipated. Indeed, with the economy having held up fairly well and the labour market tightening, policymakers may now seek to bring inflation back to the 2% target over a more conventional time horizon (i.e. within two years) as opposed to allowing inflation to overshoot the target for more than three years, as they appeared to be comfortable with at November’s Inflation Report.
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