What Will Happen to Interest Rates in 2022?

The Bank of Canada and the Federal Reserve are expected to announce additional rate hikes over their remaining meetings in 2022, the first of which will be this Wednesday, June 1st from the Bank of Canada. Throughout the first half 2022 both central banks have raised rates by 75 basis points – one initial 25 point hike and a subsequent 50 point hike. So, what is the current outlook for future rate hikes and how high could we see them go before the end of the year?

What is likely to happen to interest rates in Canada and the U.S.?

The Bank of Canada and the Federal Reserve are battling to slow the pace of inflation in their respective countries. As a result, both nations have already been through back-to-back rate hikes this year. Rate hikes are highly probable to continue through the rest of the year.

Interest rate probabilities in Canada

The short-term outlook for interest rates in Canada point to a market consensus 50 bps hike at the next Bank of Canada meeting on Wednesday (June 1). This would be the first back-to-back 0.50 point hike in 25 years.

If everything goes to forecast, Canada will see a 2.5% annual increase, something that has not happened since 1995. Analysts predict the interest rate will be 2.75% by the end of the year, which would be the highest rate the Bank of Canada has held since September 2008.

Below is a breakdown of how Bloomberg Analysts are currently forecasting the rest of the year to play out.

Source: Bloomberg

Interest rate probabilities in the United States

The forecast for interest rates in the U.S. paint a similar picture to Canada. The pace of the rate hikes is expected to continue with 0.50 point increases having probabilities of more than 90% at the next two Federal Reserve announcements.

Source: Bloomberg

As always, if you have any questions about interest rates, you can call us at 604-643-0101 or email cashgroup@cgf.com