 Bank of Canada set to deliver another jumbo rate hike, decision guide. The Bank of Canada is set to take another aggressive step in its hiking cycle, moving swiftly to tame inflation by bringing its policy interest rate back to a more neutral level. Markets and most economists expect a second straight half-percentage point increase on Wednesday that would take the benchmark overnight rate to 1.5%. A third 50 basis point hike is expected in July, before policymakers led by Governor Tiff Maklam slowed down the pace of tightening later this year. The rapid moves are meant to be an overwhelming response to the stronger than anticipated price pressures dogging the nation. It's an effort to choke off cheap money in an overheating economy, while also signaling to Canadians the central bank remains committed to its 2% inflation target. The Bank of Canada needs to remain aggressive and reassure the public that they will bring inflation to heel, Benjamin Reitzis, rates and macro strategist with the Bank of Montreal, said by email. It's difficult, if not impossible, to predict when or if inflation expectations will become unhinged, but that's clearly the risk. Wednesday's decision, due at 10 a.m. in Ottawa, is a statement only affair with no new forecasts. Deputy Governor Paul Baudry, however, will give a speech and hold a news conference Thursday to provide more insight into the bank's thinking. The rate statement will likely sound hawkish to justify the jumbo hike and leave open the possibility of another half-point increase at the July 13 meeting. Policymakers will also probably comment on data showing continued access to demand and price pressures, and will concede that their most recent inflation forecasts are again proving stale. Gross domestic product expanded at a 3.1% annualized pace in the first quarter, Statistics Canada reported Tuesday, reflecting the economy's resilience and highlighting strong growth in consumption and domestic demand. Inflation, meanwhile, could top 7% in May, hitting a four-decade high. The nation is also dealing with a drumtight labor market. The unemployment rate hit a record low of 5.2% in April and job vacancies are now at a record high, all signs of an economy that's run out of spare capacity. Interest rates, though, remain extremely stimulative. The central bank estimates its policy rate needs to rise to between 2-3% in order for borrowing costs to no longer be inflationary. Rates that commercial banks give to their prime customers are typically just over 2 percentage points above the Bank of Canada benchmark. Anything above 3% would bring policy settings clearly into contractionary territory, though economists and market-stone-anticipate-interest rates will need to rise to those levels, a tacit assumption the central bank will be able to engineer a soft landing. What Bloomberg Economics says Upside risks to inflation loom larger than downside risks to growth. As a result, we expect the bot will leave in a bias toward further tightening in the statement, via the line that it judges that interest rates will need to rise further. Andrew Husby, Economist For the full analysis, click here. Policymakers are expected to ease up after three oversize moves. Trading and money markets suggest three or four more hikes are priced in after July, but all quarter point, and the central bank is seen stopping around the 3% mark. Economist forecasts largely mirror the market pricing, though their expectations are for a slightly lower terminal rate. Some analysts doubt Canada's housing-reliant economy would be able to cope with borrowing costs much beyond 2.5%. A new survey by KPMG found that 71% of small business owners in Canada say higher interest rates are putting material pressure on profit margins, while more than half say they are expecting some sort of drop in the value of their firms. Canada's housing market already appears to be under stress from higher borrowing costs, with Canadian home prices falling for the first time in two years after transactions plunged 13% in April. That's helping to drive a sharp deterioration of Canadians' finances. MacLum faces credibility test amid political firestorm. Biden seeks to deflect inflation blame with Fed meeting. Eurozone inflation hits record as ECB mulls quick hikes. That is one of the key reasons why we think that, after another 50 BP hike in July, the pace of hikes will slow down, Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a report to investors. Others see markets underpricing odds of rate hikes given Canada's tight labor market, a large pool of excess savings and a massive tailwind from the recent surge in commodity prices. The central bank hasn't clearly signaled a path beyond the neutral range. We will be watching closely to see how the economy responds to higher interest rates, Senior Deputy Governor Carolyn Rogers said in a speech earlier this month. We are not on autopilot. We will be looking for signs that the economy is returning to balance.