No More Rate Hikes!(?)
Hi, ! It’s Friday!
This has been a busy week in the news with the much anticipated Bank of Canada interest rate hold. This was widely anticipated, especially as we got news earlier in the week that the quarter-over-quarter economic results were less than stellar.
Canada underachieved in the world-wide growth category (see last week’s newsletter for my thoughts on over-investing in Canada). We saw a contraction of 1.06% in Q3, while the US economy grew by 5.2% (both the EU & Australia had moderate growth). I won’t tell you what the Financial Post’s OpEd said about the reason why a country with so much potential and massive resources is lagging so far behind it’s peers (unless you respond to this and ask), but it wasn’t very nice.
So, even though it wasn’t much of a shock that the rates were being held, it did shed some light on the state of the economy as well as change some projections on how quickly we’re going to see rate reductions. Although the Bank reminded us all that it could raise rates again in the future, most are now looking to when, not if, rates will start decreasing, and by how much.
In the same way that there was a consensus that the interest rate would hold steady, there also seems to be a consensus that we are done with the rate raises. CIBC’s deputy chief economist, Benjamin Tal, estimates that the Bank overshot the rate raises by 0.25% - 0.50%. The reasoning behind this is that we are currently in “recessionary territory” as well as inflation being down to 3.1% (unless you’re buying groceries, then that’s another story and I have a great interview coming up on this).
Much of the thoughts by the experts is that we should start seeing a reduction in the interest rates by late spring/early summer, although don’t expect big reductions right away. The Bank fears that if they reduce the rates too quickly that we might see an uptick in inflation. That being said, an overall reduction of 1.50% next year is not out of the cards.
Some good news for those that are having to renew mortgages next year, but there will still be some pain. When it comes to mortgages, I will be speaking with mortgage expert, Tania Labonte, today (likely right as this is hitting your mail box) to try and get a better read of what she’s seeing from the mortgage-side. I will also pick her brain on where she thinks rates will go as well as asking her the hard questions about variable vs fixed at this time. I should have the video for that up by mid-next week, so keep an eye open for that.
Finally, a bit of a call back to my email last week. With some of the recent news coming out, making sure that you have a portfolio that isn’t over-exposed to Canada could be more crucial than ever. Many experts are looking at what they call a “lagging effect”; meaning that the full extent of rate hikes takes about 12-18 months to trickle down to the economy. When the rate hikes started in March of 2022, consumers (you and me) had about $1.65 billion saved in accessible, short term accounts. Much of this was due to the effects of COVID and the spending/saving habits during that period. The most recent report has that number at…. zero. With no savings to pull from we could see a turbulent time for the Canadian economy in 2024. There are plenty of investment opportunities out there and making predictions is a fools game, but a sound investment strategy that correctly weighs risks and diversification is more important today that it has been in over a decade.
Just to let you know, this will be my last Friday Newsletter. Fridays are the gateway to the weekend - you should be getting newsletters and publications hitting your inbox that are revving you up for the adventures ahead, so I’m changing the date to every Monday going forward - except for the 25th of this month. I promise I won’t send you anything on Christmas!
On that note, have a great weekend and you can expect the next one in just over a week.
Best,
Trevor
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