Federal Reserve: Stronger case for higher US Dollar rates – RBC Economics

RBC Economics argues the case for higher Federal Reserve (Fed) rates is stronger than for the Bank of Canada (BoC), citing rising US core inflation, robust Q3 GDP and a historically tight labour market. The bank expects a cumulative 50 basis points of additional Fed tightening, including a December hike, and sees risks skewed toward an even larger US hiking cycle as growth and inflation outperform.

Fed tightening risks skewed higher

"Rising core-inflation pressures, strong Q3 GDP growth, and a historically tight labour market continue to point to a need for additional Fed tightening to contain inflationary pressure."

"We expect both the BoC and the Fed to hike in December."

"Risks are relatively balanced around our BoC forecast but tilted toward a larger hiking cycle in the United States."

"US growth and labour-market momentum continue. GDP forecasts have been revised higher again, averaging 2.4% in 2026 and 2027, up from previous forecasts of 2.1% and 2.2%, respectively. We continue to expect the unemployment rate to average near historical lows, at 4.2% in both 2026 and 2027."

"We continue to expect a cumulative 50 basis points of additional Fed tightening in this cycle, including one hike at the next meeting in December. Recent producer-price data suggest that further inflation pressures are building in supply chains. We see risks of a larger tightening cycle than currently assumed."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)