As fiscal expenditure moves forward and Canadians have more cash, investors are expecting the Bank of Canada to begin tightening monetary policy in 2022, which will undoubtedly result in an interest rate jump - likely above the previous peak.
In the four tightening cycles seen since the 90's, the BoC's key interest rate crested at a lower level than the previous end figure.
The next cycle is likely to result in a different outcome, as record levels of global federal spending substantially increase economic recovery potential.
The Federal government is spending $101 billion, approximately 5% of GDP, to inject the economy over the next three years. American President Joe Biden has suggested trillions of infrastructure spending. Canada assigns about three quarter of its exports to the U.S.
Canada's central bank has indicated that it could start increasing rates from its record low rate of 0,25% by the middle of next year, which is ahead of schedule compared to the Federal Reserve's projections.
"There is a lot more fiscal policy this time. to me that's the real game changer," explained Andrew Kelvin, chief Canada strategist for TD Securities. "Canada, last cycle, was part of a global cycle where no central bank really achieved what they would regard to be neutral rates."
The neutral rate is what is expected to be set when the economy is fully recovered, at its full strength and inflation levels are at target - so it may be a warning of things to come. The Bank of Canada's current projection for the neutral rate is between 1.75% and 2.75%.
The central bank of Canada figures that federal pandemic support, coupled with reduced spending due to lockdowns, boosted savings last year by approximately a whopping $180 billion.
Those savings are most likely going to contribute to consumer spending over the next decade.