There's that word again

"Forcefully". When Bank of Canada Governor Tiff Macklem used that word in Washington last week to characterize the Bank's tightening approach, it prompted many commentators to speculate that the Bank might start hiking rates in bigger increments: 75 basis points rather than 50 perhaps.  Speaking today in Ottawa to the House of Commons Finance Committee, Macklem said it again:  "We are committed to using our policy interest rate to return inflation to target and will do so forcefully if needed". Under questioning from the committee, Macklem suggested that any move gretaer than 50 basis points would be 

That is unambiguously hawkish, even as it leaves plenty of wriggle room -- after all, Macklem hasn't explicitly defined what he means by "forcefully". The remainder of Macklem's speech gave him the opportunity to explain to the assembled parliamentarians just why forceful action might be needed. For the most part it was a restatement of the views presented earlier this month in the Bank's Monetary Policy Report. Some of the key points:

On growth: "the economy has bounced back remarkably quickly. It has been the fastest and sharpest recovery ever. And now demand is beginning to run ahead of the economy’s productive capacity.....Canada’s unemployment rate is at a record low 5.3%. Job vacancies are elevated, and wage growth has reached pre-pandemic levels..... the Bank forecasts the Canadian economy will grow 4¼% this year, before moderating to 3¼% in 2023 and 2¼% in 2024".

On inflation: "Consumer price index (CPI) inflation in Canada hit a three-decade high of 6.7% in March, well above what we projected in the January MPR.... While most of the factors pushing up inflation come from beyond our borders, with the economy in excess demand, we are facing domestic price pressures too....Our latest outlook is for inflation to average almost 6% in the first half of 2022 and remain well above our 1% to 3% control range throughout this year. We then expect it to ease to about 2½% in the second half of 2023 before returning to the 2% target in 2024".

On interest rates: "With demand starting to run ahead of the economy’s capacity, we need higher rates to bring the economy into balance and cool domestic inflation....if Canadians’ expectations of inflation stay anchored on the 2% target, inflation in Canada will come back down when global inflationary pressures from higher oil prices and clogged supply chains abate.....Two weeks ago, we raised the policy rate to 1%, still well below neutral. This is also below the pre-pandemic policy rate of 1.75%......we may need to take rates modestly above neutral for a period to bring demand and supply back into balance and inflation back to target".

Experience from the days when I used to get paid for writing this stuff suggests that policy hints from the Bank must be taken more seriously when they are made before a domestic audience rather than an international one. If Governor Macklem uses this rhetoric before a group of elected officials, we can be sure he means to follow through. 

Under questioning from the Committee, Macklem suggested that any move greater than 50 basis points would be "very unusual". Then again, so is an inflation rate of 6.7 percent, which Canada recorded in March  The Bank's next rate announcement is due on June 1. Before then, we and the Bank will have a chance to ponder the April CPI data. If those show a further surge, that 75 basis point hike may well be back on the table.