Bank of Canada: Fed didn't need 'scary' inflation to act

Fri Dec 18, 2015 5:36pm EST
 
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By Randall Palmer and Leah Schnurr

OTTAWA (Reuters) - It is unsurprising for the U.S. economy to recover before others and therefore it makes sense for the Federal Reserve to be the first to begin hiking interest rates, Bank of Canada Governor Stephen Poloz told Reuters on Friday.

The Fed did not have to have "scary inflation" for it to act, saying that if central bankers wait until inflation is at or above their target and the economy has too much momentum, they could have a problem, he said.

The Fed hiked rates for the first time in nearly a decade on Wednesday, at a time when other central banks are easing or maintaining accommodative policies, and Poloz said policy divergence was to be expected.

"Divergence doesn't mean (other central banks') cutting rates necessarily. It could mean constant rates, it could mean rates going up more slowly. It's just divergence," Poloz said in the bank's headquarters.

"We can't forget our history," he said, noting that the financial crisis started in 2007 and 2008 in the United States, and the United States has done the best job anybody could do cleaning it up.

"And so, no surprise that the U.S., I think, is coming out of it before others. So there's an uncorrelated upturn in play, and some would say the upturn is still to be seen in certain places," he said.

"So, since it's coming out first, then it just makes logical sense to be the first to begin normalizing policies."

He pointed to his frequent assertions that when the Fed did begin hiking it would be reassuring for Canada because it would underscore the confidence the United States has in its upturn.   Continued...

 
Bank of Canada Governor Stephen Poloz takes part in a news conference in Ottawa December 15, 2015.     REUTERS/Blair Gable