Federal Reserve: Is the case for higher US Dollar rates strengthening? – RBC Economics

The risk of further rate increases is greater for the Federal Reserve (Fed) than for the Bank of Canada (BoC), according to RBC Economics, which points to rising US core inflation, robust Q3 GDP and a historically tight labour market. With US growth and inflation outperforming, the bank sees risks tilted towards a larger US rate-hike cycle than its forecast of a cumulative 50 basis points of additional Fed tightening, including a December increase.

Could the Fed’s Tightening Cycle Extend Further?

"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. Learn more.)