Bank of Canada Admits to Missteps on Inflation as Housing Cools and Rate Cuts Loom

The Bank of Canada underestimated inflation in the early stages and was too slow to start raising interest rates. It admits it should have started tightening 6 months sooner.

Housing prices hit record highs in early 2022 but have since fallen nearly 20% due to higher interest rates and slowing demand. Prices rebounded briefly when rate hikes paused.

The economy has so far avoided recession despite rate hikes. Population growth from immigration and resilient households have helped achieve a "soft landing."

Inflation has cooled from a peak of 8.1% to 2.9%, though shelter costs remain high. Core inflation would already be at the 2% target without mortgage rates.

Economists expect rate cuts to begin in mid-2023, reversing about 2 percentage points of hikes. Rates likely won't return to pre-pandemic lows but remain above neutral.