United States 

•   It was a very quiet week for U.S. data releases, but there was plenty to digest on the macro economic policy front, both domestically and abroad.   

•   Unsuccessful discussions regarding the U.S. budget, a growing divide at the Fed, and the first interest rate hike since 2008 by the European Central Bank (ECB), led to higher U.S. Treasury yields across the maturity curve and to a further weakening of the U.S. dollar vis-à-vis its main crosses.  

•   The ECB move was a reminder that interest rates are headed in only one direction and it won’t be long before other central banks in advanced economies such as Canada and the U.K. follow suit.  

Canada 

•   The Bank of Canada’s Business Outlook Survey indicated that the inflation expectations of businesses have turned upwards, while more firms appear to be facing increased capacity pressures.  Our view on inflation and the direction on monetary policy remains unchanged.  The increase in inflation expectations is largely linked to rising energy prices.  

•   Firms indicated that competitive pressures will limit their ability to pass cost increases onto consumer prices.  

•   A number of domestic demand indicators suggest inflation will not be a problem in the near-term.  Nonetheless, slack in the Canadian economy is gradually being absorbed and a rebalancing of monetary policy will be needed, but the Bank of Canada can wait until July to start raising rates.