There is currently no guarantee of an imminent recession in the U.S., according to former Bank of Canada Governor Stephen Poloz.

Speaking to Michelle Makori, Editor-in-Chief of Kitco News, Poloz said that there is still time to “normalize the economy.”

“I certainly would agree that there’s a substantial window available still to avoid a recession and still get the situation normalized,” he said.

Poloz served as the 9th Governor of the Bank of Canada from June 3, 2013 to June 2, 2020. During this time, up until the outbreak of COVID-19, Canada saw steady GDP growth in the low single-digits, low unemployment, and inflation close to the Bank’s 2% target level.

Some financial institutions agree with Poloz’s view on a coming U.S. recession. His comments come as Goldman Sachs issued a report this week saying that a recession within the next two years is not inevitable.

On inflation in Canada, Poloz said that it is “transitory”, in the sense that it will dissipate eventually. He noted that the term “transitory” in an economic sense doesn’t mean that the consumer prices will normalize soon after rising, but simply that inflation will eventually stop rising.

The latest Consumer Price Index (CPI) in Canada, as of April, stands at 6.8% a 30-year high.

“I do think that a great deal of the inflation we’re observing is transitory in a technical sense that it will go away, over the next, I would say, 12 months, a little longer, perhaps, depending on what happens with oil prices due to the Russian conflict and Ukraine,” he said.

Eventually, the inflation rate in Canada will return to close to the Bank of Canada’s 2% target.

“In today’s modelling on how inflation works, provided expectations have remained pretty anchored, we will come right back down to 2%. It’ll take a little while, but that’s okay. As we go along, we don’t have to have a recession to get it done. That’s my best-case scenario,” he said.

Poloz added that a lot of the inflation that Canada has now is “exogenous”, and not entirely within the control of the central bank.

Such as an exogenous force would be rising commodity prices, like crude oil, he noted.

“$120 oil prices can almost cause a recession all by themselves,” he said.

The consensus expectation is for the Bank of Canada to raise interest rates by 50 basis points at Wednesday’s meeting.

Poloz said that this in itself may not be enough to cause a major crash in the Canadian housing market.

“When interest rates go back to normal, [the housing market] is bound to slow down. But I would say that underneath that is a really important floor. Immigration levels are extraordinarily high, well over 400,000 new arrivals this year. That is sure to put a significant floor underneath the Canadian housing market. Whether that avoids a correction in some prices, in some overheated markets, who can really say. I mean, you could have a correction in prices in Toronto or Vancouver, for example. In the big picture, that wouldn’t be much of a shock, and it wouldn’t mean much to the economy,” he said. “Prices have risen substantially over the last two years. It would take a really, really big correction to really disrupt the housing market.”

On the precious metals, Poloz said that the price of gold is not trading higher, as some investors would expect, because the markets believe inflation will eventually be normalized.

“I think what this is showing us is that inflation expectations throughout the world have remained pretty well anchored. People are beginning to ask questions, like, ‘is inflation really starting to take off?’ And they’re hearing from their central banks a careful explanation for what’s going on and what they’re doing about it, and I think as [we have] both rising interest rates, as well as [quantitative tightening] affecting those expectations, helping to buttress them, and we see, I think, over the next 12 months, a steady downtrend in headline inflation numbers, I think that’s going to reassure a lot of people. And I think in that context, I would not expect gold to be taking off, because the long-term inflation outlook would remain intact, despite this bulge that we’re all seeing,” he said.

Poloz added that gold’s inflation hedge properties are not short-term in nature, and just because the price doesn’t follow the CPI on a month-to-month basis, it doesn’t mean that gold can’t hedge against rising costs over the long-term.

“Just because the price of oil doubles, you will not see gold suddenly leap up to compensate gold holders for that. That is not what we mean by an inflation hedge,” he said.

For Poloz’s views on why Canada sold its gold reserves, watch the video above.

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