Sherry Cooper Likely Quotations

High energy prices keep on working their way through the system. The risks remain skewed to a mild up-creep in core inflation during the months ahead, which will keep the Fed on track for another rate hike in March and likely in May.

We remain of the view that next week's rate hike will not be the Fed's last work this cycle. Indeed, they will likely eventually unwind all of last fall's crisis-induced easing.

Further widening in the trade deficit in the months ahead is very likely given that the surge in oil prices will drive imports higher and that there has been no let-up in the domestic economy.

(Today's data) will likely keep the Bank of Canada on track for a rate hike at next week's decision,

The Christmas season this year might well bring cheer, but consumption growth next year is bound to slow, ... From an annual pace of nearly 4.0 percent in 2004, consumer spending will likely grow at a 3.5 percent rate this year, decelerating to a 2.25 percent pace in 2006.

The bank's new focus is likely to be on rising wage pressures, but that still seems a distant inflation threat at this point. On balance, there is nothing here to divert the bank from its gradual tightening course.

My take is that the Fed will continue to raise overnight rates until it feels it has moved from a stimulative to a neutral policy stance. That will likely take the funds rate to 4 per cent-to-4.25 per cent by yearend.

Armed with the weaker U.S. dollar, commodity prices heading north, and a strengthening economy, rising inflation pressure is still likely to emerge as a concern for the Fed. But not yet. Not yet.