In the wake of the latest central bank action on interest rates, economists at CIBC are fast forwarding their rate projections.

The bank’s economists are now calling for both the Bank of Canada and the U.S. Federal Reserve Board to deliver 75-basis-point rate hikes with their next rate setting decisions.

“There’s little doubt that major central banks are fully engaged in an effort to bring inflation back down to earth,” the economists said in a report, noting that they’ve increased their peak rate forecasts and now expect both central banks to hit those peaks this year — 2.75% for the Bank of Canada by September and 3.25% for the Federal Reserve by the end of the year.

These moves will result in “a sharper retreat in growth than we earlier projected, and in the more rate-sensitive Canadian economy, more than the central bank is bargaining for.”

Even so, the report indicates that the bank’s economists still expect the economies to avoid recession — but they do see growth slowing sharply, and ultimately pushing unemployment rates back up.

While inflation is likely to remain high in the short term, “on both sides of the border, we see a resolution of some of these supply issues, alongside slower demand gains, as bringing a sharper dive in inflation by 2023 than most now expect,” it said.

The report also argued that it should be possible for the central banks to bring inflation back to their 2% targets in the longer run, despite the prospect of other macro trends — such as reshoring production and the fight against global warming — raising costs and, ultimately, prices.

These factors may bite living standards, but won’t necessarily drive high inflation, it said.

“[T]he worries surrounding deglobalization, carbon reduction costs, or the costs incurred in a failure to contain climate change, should be focused on the implications for real incomes and living standards, and not on trend inflation,” the report said.

“That’s why although short-term price spikes can be caused by wars, droughts, and other shocks that impact costs, Milton Friedman was right when he concluded that, on a sustained basis, ‘inflation is always and everywhere a monetary phenomenon,'” the report concluded. “That will still be true even if post-pandemic supply chain adjustments or geopolitical trade frictions add to business costs.”