Bank of Canada governor, Tiff Macklem reiterated to the House of Commons Standing Committee on Thursday his pause in raising the bank’s prime rate should not be considered set in stone..“In January, we raised our policy interest rate by 25 basis points to 4.50%. We also said that we expect to hold the policy rate at the current level while we assess the impact of eight consecutive interest rate increases since March 2022,” said Macklem. “This is a conditional pause — it is conditional on economic developments evolving broadly in line with our forecast.”.Macklem said he believes the bank’s radical moves to increase the rate eight times are accomplishing his goal to bring demand down to supply levels, but the work isn’t done..“We’ve seen some evidence that our interest rate increases are starting to slow demand and rebalance our overheated economy,” he said. “With inflation above 6%, we are still a long way from the 2% target. But inflation is turning the corner. Monetary policy is working.”.“Household spending is slowing, particularly for goods sensitive to interest rates like housing and furniture. More broadly, consumption growth appears to have weakened considerably in the second half of 2022. Some of this slowdown reflects the waning boost from the reopening of the economy, but higher interest rates have contributed.”.The inflation rate in December was 6.3%, down from the peak of 8.1% in June.Macklem said the decrease came with lower prices for energy, particularly for gasoline..“With global supply chains improving and demand slowing here at home for big-ticket items that people often buy on credit, price increases for durable goods have also moderated,” he said. “Prices for food and many services, however, are continuing to rise much too quickly.”.“The Canadian economy remains overheated and clearly in excess demand, and this continues to put upward pressure on many domestic prices.” .“A broad range of labour market indicators have shown only modest signs of easing. Job vacancies have come down a little but remain elevated, the unemployment rate is near historical lows, and many businesses continue to report labour shortages.”.Macklem acknowledged last year the bank should have started increasing the rate much sooner than last March and putting it off as long as he did means a recovery will take longer..“We know it takes time for higher interest rates to work through the economy to slow demand and reduce inflation. That’s why policy needs to be forward-looking,” he told the house committee..“Guided by what we have seen so far and our outlook for economic growth and inflation, we think it is time to pause interest rate hikes and assess whether monetary policy is restrictive enough to return inflation to the 2% target.”.Macklem is targeting a slow return to a demand/supply balance through the first half of 2023..“We expect CPI inflation to fall to around 3% in the middle of this year and reach the 2% target in 2024,” he said. “We’ve already seen a momentum shift in the price of goods. .“For inflation to get back to 2%, the effects of higher interest rates need to work through the economy and restrain spending enough for supply to catch up. The tightness in the labour market needs to ease, wage growth needs to moderate, and service price inflation needs to cool. Inflation expectations also need to come down and businesses return to more normal pricing behaviour.”.“If economic developments are broadly in line with our forecast and inflation comes down as predicted, then we shouldn’t need to raise rates further.”.Macklem said the expectation is economic growth will be close to zero for the first three-quarters of the year. Stalled demand will allow supply to catch up, which will relieve inflationary pressures..“If those things don’t happen, inflation will get stuck above our 2% target, and additional monetary tightening will be required,” he said.