Will pause if inflation projections pan out. If not, more rate hikes on the table. Frets about upside risks to inflation from services, labor market, China.
By Wolf Richter for WOLF STREET.
The Bank of Canada hiked its policy rates by 25 basis points on Wednesday, the 8th rate hike in a row, totaling 425 basis points in 10 months, bringing the target of the overnight rate to 4.5%. QT will continue and “is complementing the restrictive stance of the policy rate,” the BOC said in the statement.
The coming pause at 4.5%: “If economic developments evolve broadly in line” with BOC’s outlook, it “expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”
BOC Governor Tiff Macklem said later on Wednesday in an interview with Reuters that the BOC would pause as long as needed to judge the effectiveness of the cumulative increase in rates and think carefully about the next steps.
But with inflation still at 6.3%, “the question really we’re asking ourselves is, ‘Have we done enough?,’ We’re pausing to assess whether we’ve done enough,” he said.
More rate hikes if inflation doesn’t cooperate: Inflation was still over three times the BOC’s target, though it slowed from 8.1% in June 2022, as gasoline prices plunged and some durable goods prices dropped. The BOC is now projecting that it will come down rapidly to 3% by the end of this year and to 2% by the end of next year. But the statement and Macklem separately pointed out that this may be illusory.
The risks to the projections come from services inflation, the tight labor market along with wage growth, and the reopening of China’s economy, the BOC and Macklem pointed out.
Services inflation is in full bloom and got a worried nod from Macklem in the interview. If services inflation sticks around, “you’re not going to see inflation come down as we forecast and yes, in that case, we probably will need to do more,” he said.
In its statement, the BOC said that it “is prepared to increase the policy rate further if needed to return inflation to the 2% target.
Rate cuts not on the table: “We’re not talking about cuts. We’re not even thinking about cuts…,” Macklem said.
The idea is this: If inflation doesn’t follow the BOC’s projected path, if instead inflation dishes up surprises, as inflation typically does, and if services inflation is entrenched and won’t budge, then there may be more rate hikes.
If inflation follows the instructions issued by the BOC, and “as things start to get more back to normal, at some point, yes, we probably will be thinking about some modest cuts in interest rates,” Macklem said.
Pricking the housing bubble. The housing bubble had become an official issue for the BOC back in April 2021. “You won’t be surprised to hear that we also spent some time discussing what is happening in the housing market,” Macklem said back then in his opening statement following the BOC meeting, and he has been talking about it ever since.
And what was once one of the biggest most breath-taking housing bubbles in the world is now deflating at a rapid pace.
Home prices in Canada dropped by 17.4% in December from the peak in March 2022, and by 7.5% year-over-year, according to the Canadian Real Estate Association. Sales plunged by 39% year-over-year. The composite benchmark price of the Canada MLS Home Price Index for all types of homes has now dropped by C$151,300 in nine months since the rate hikes started.
Whether or not the BOC’s tightening will knock down inflation the way the BOC is projecting remains to be seen. But tightening has started to take down this splendid housing bubble that the BOC had so vigorously inflated and then so vigorously fretted about:
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The Bloomberg Financial Conditions Index is now back to where it was in February 2022 when the Fed Funds Rate was 0%. Both the Toronto Stock Exchange and the SP500 have bounced in similar fashions as liquidity momentum builds once again. At the very least the central banks will need to stay higher for longer on rates, even if they pause immediately.
Future inflation volatility deja vu seems likely over the next few years as the Pavlovian dogs hear nothing but bells…
The real Metrics:
1. US Fed Reverse repo still at $2 Trillion, QT failed to cut this liquidity.
2. US treasury yield is 3.5%, i.e. 0.8% below US Fund rate and 3% below Inflation rate => Negative real rates!
3. Markets celebrating 4% decrease in earnings by lower expectations and selling expectations beat to stoned investors.
4. Service inflation keeps running hot with no signs of cooldown.
5. Bitcoin rising to 23K with calls to increase to $100K. No bankruptcies in worthless crypto miners.
6. Tech still selling AI as the “revolution” since last 10 years: (its really just a combo of mathematical regression, Kalman filter and endless dumb code from developers to handle infinite use cases.)
Conclusions:
Fed has failed to control speculation with its “too little too late” QT and money keeps getting diverted from productive investments to speculation. The living standards in western societies and value of their currencies wrt to real goods and services keep going to heck in a straight line, denying the website’s dictum!
Yes, the bubble is still red hot. Central banks will have to be a lot more restrictive to normalize things. The total crypto currencies still have a >$1T market cap. Overall stock market still bubble levels too.
Yes, inflation is nowhere near done. To think otherwise is naive. The US government’s fiscal recklessness continues, and the inflationary effect of the recent $1.7TN bill won’t even be seen until next year. Meantime, QT has only just got started. The markets are still doing their Pavlovian “buy the dip” thing and many of the companies still have insane P/E ratios. We could be on the cusp of Dot Bomb 2.0 for all we know right now.
Paraphrasing Herb Stein, “the longer this goes on, the worse the payback’s gonna be.”
” (its really just a combo of mathematical regression, Kalman filter and endless dumb code from developers to handle infinite use cases.)”
Very long ago in my diploma work I was using gradient descent algorithm to optimize parameters.
Now I have learnt that I was doing deep learning :)
Algorithms are going to control human behavior in ways that are near impossible to understand until after the fact. Stalin is drooling from the grave as he could only fantasize about such omnipotent societal control at a hidden subconscious and thus undetectable level on a broad planetary scale.
For example, today Bloomberg had an article about the Vegas hotels using the Rainmaker algorithm that keeps rooms emptied and raises prices to make an average of 15% more using the software. 99.9% of the Vegas guests have no clue what is going on, but one couple figured it out and are now suing. Tip of the iceberg on endless future capitalism “profits at all costs” monopoly, collusion, and outright anti-practice fraud by billionaire/trillion dollar companies what temporarily rule the Universe…
Per Bloomberg:
Rainmaker Group collects an array of data, including pricing information, details of every booking or attempted booking, even the identification of individual visitors, ranking them on the amount they’re likely to spend visiting casinos, according to the complaint.
The algorithm then makes a price recommendation to the hotel, which Rainmaker claims is accepted 90% of the time, the lawyers wrote.
That means the algorithm, “not normal market forces,” sets the prices, they said.
Yort, I see “Phishing for Phools”
Stochastic gradient descent is not what makes deep learning deep. Also, the parent comment is similarly misguided, current ML is not just regression and especially not kalman filter.
“Stochastic gradient descent is not what makes deep learning deep.”
what is it that does? backpropagation? :)
I think they have it about right. Pause and see if they need to do one or two more 25 bps hikes (or not). Inflation is going to be stickier than many people assume: things like rent and wage increases take a long time to fully work their way through the pipeline. There is a barrage of complaining over on twitter (including from Poilievre) but not a lot of constructive suggestions on what BoC should be doing different. Halt at 4.25 instead of 4.50? Sure, maybe, if you want to quibble. Cut? Yeah, no.
“I think they have it about right….There is a barrage of complaining over on twitter (including from Poilievre) but not a lot of constructive suggestions on what BoC should be doing different.”
Nope, they’re pretty much doing it wrong. They’re favoring speculators and trying to “park” asset prices at permanently high plateaus. They are guaranteeing years of inflation and an eroding quality of life for the masses because they’re pitting their shants at the prospect of having to pop the very bubbles they created and can’t bring themselves to do it, instead crafting a “soft landing” fantasy narrative akin to “transitory.”
As Stanley Druckenmiller recently commented in the US financial news media: “Once inflation gets above 5%, it’s never come down unless the Fed Funds rate is higher than the CPI.” With that knowledge in hand, they still have the arrogance to suggest they are magical and can somehow achieve something that has never happened. Worse, past inflationary episodes were NEVER fueled by such reckless money-printing as was the case this time, so the dry tinder in the forest is much more prevalent. These central bankers are a scourge upon humanity.
“They are guaranteeing years of inflation”
If CPI stays above the target then BoC will keep raising. BoC promises no soft landing, though they certainly aim to achieve one that is as soft as possible. Will they have to raise again? Sure, maybe. But you’ve promised years (not months) of inflation, so there is no harm in waiting for a couple of CPI reports to confirm if your thesis is correct, or not.
The counterfactual, BoC deliberately aiming for a _hard_ landing, makes zero sense. BoC can engineer a hard landing _easy_. There is nothing to fear, at all, if “the masses” _want_ a recession. Poilievre can go on TV right now and opine that a 30% market correction should be the BoC’s policy. He isn’t doing that, though, is he.
CPI is trending down. You can bet against that trend and make a fortune. You said years of inflation are _guaranteed_. There’s nothing better for investment returns than a guarantee like that. Load up on a 10x mortgage today. Hell, leverage a whole apartment block. After all, rents are going up for years to come according to your thesis. Buy energy companies and consumer staples on margin, since those companies will have ever-increasing earnings as prices continue to rise. Your loans will inflate away (guaranteed!) and you’ll make bank.
I bet the other way, for what it is worth: That inflation peaked and yields will come down. Before it does, those who are overleveraged will mostly get rekt. All that debt fueled dry tinder makes it easier to suppress inflation with rate hikes, not harder, as you imply. We can check back Q1 04 and see if I wagered correctly. Wish me luck.
https://www150.statcan.gc.ca/n1/daily-quotidien/230117/cg-a001-eng.htm
So no time line of “Waiting for Godot”.
Perhaps inflation will do the Banks hoped for bidding and pop straight back into the object from which it escaped.
Personally whipping it with a damp lettuce leaf would have better outcomes. However they made the monster, are afraid of the Monster and I fail to see the Monster obliging its freedom so readily.
Looking at the trend of Canadian inflation % dropping to intersect and possibly drop below the current central bank % rate it would appear that they may be correct in pausing.
Could be happening sooner than later in the USA as well?
What’s with huge pop in BTC? Possibly need to rethink that whole (going to crash) meme?
It should be crashing but seems to resist that for some reason.
Best of luck to all you traders. Make some coin this year!
They can’t have everyone in Brampton losing their house even if those mortgages were obtained with falsified income.
Right. Because that would result in affordable housing for people MUST.NOT.ALLOW.THAT. Housing is so much better off in the hands of reckless speculators……
Reckless speculators are neither here nor there. They simply aren’t a factor.
Looks like you can add south africa to list slowing rate increases. They raised quarter point instead of expected half point.
The rand then weakened.
A reasonable approach…
It seems we are getting back to a new normal.
In honestly. Fed fund rate of 4.1% and mortgages in the 6ish are historically accommodating interest rates.
Pre 2010, everyone would be happy with these rates for being on the low end.
Nat Gas is now below 3. That will help lower inflation from electricity, fertilizer which is a food input, manufacturing, etc. This should help keep inflation from rising. Not sure if it will drop.
Now will nat gas stay this low. Cheasapeak CEO last week was hinting that the U.S. is over producing and saying we should slow down nat gas drilling. Just like all commodities. Prices shoot up and then we over produce. LOL Prices could continue to drop I am guessing. I guess China’s reopening will be interesting to see if prices for commodities increase or do they keep decreasing.
I guess what I am saying, the FED can raise interest rates some more to quell overpriced assets while lower commodities prices will help offset the consumers increased borrowing costs?
Here in Omaha gas bill is increasing 30% ,people are not happy.I retired from utility company 4 years ago ,was an efficient public utility. Now is a overbloated bureaucracy,to many VP and safety dept bloated by retired firemen who already have 100k retirement
Inflation Whac-A-Mole. The thing is, oil prices have been rising and gasoline and diesel prices have been rising for weeks. The year-over-year price drops of gasoline will be huge going into the spring, compared to the sky-high prices last year (base effect), but the monthly drops are over, and we may see monthly rises instead.
There will be a similar dynamic in place for durable goods going further into 2023.
So the elements that pushed down CPI in mid to late 2022 are disappearing. And the elements that pushed up CPI (services) are remaining.
One objection: China, the world’s factory, is coming back online. I think that could push up oil and gas and metals in the immediate term and push down manufactured stuffs in the short to much longer term.
There must be a name for it, but when bubbles burst the ride down is often mirror image of ride up. You can see it beginning in the housing chart.
The other thing is are you going back to long term trend or are you going to overshoot on the downside.
Head and shoulders formation, and reserve balances at the federal reserve chart looks like the mother of all head and shoulders.
The Bond Market is very clear and the Yield Curves inversions (All around the world) at levels never seen in the last 40 years, are saying that the Interest Rates Cut is going to come soon.. but not because the Fed got its goal…just because the RECESSION is coming. My Advice to the Federal Reserve is: “Don’t Fight the bonds market because you always lose!” :)
Yield curve inversions don’t mean what they used to because central bank bloated balance sheets massively distort the bond market. One central bank even has a Yield Curve Control policy for which the precise purpose is to distort the yield curve. In this new world, yield curve inversions means that QT is too slow relative to rate hikes and needs to be accelerated.
Future is unknowable, but the bond market is pricing in the scenario you mention. It might be right or wrong. Fed has a track record of optimistic forecasting, probably by design. Can’t have a central banker say that things are going down the toilet.
“My Advice to the Federal Reserve is: “Don’t Fight the bonds market because you always lose!” :)”
Market’s advice always, except now? “Don’t fight the Fed.”
Who knew “Market” lies like a politician…..
This debate going on right now about who knows best, the Fed or the Bond Market, is comical. I would propose that neither has any clue. Exactly one year ago today Wolf said this:
“In reaction to the FOMC announcements and Powell’s post-meeting press conference today, the 10-year yield spiked nearly 10 basis points, to 1.87%, the highest since December 2019, and the two-year yield spiked by 15 basis points to 1.17%, the highest since mid-February 2020“
The 2 year yield was just over 1% a year ago! Does that sound like they had a clue what was coming? Do you think the 2 year yield today accurately represents what is coming? I do not. A dart board is more accurate.
Although short term bond rates in Canada have increased a little in the last month, long term bond rates are falling. Does that mean traders are forecasting a fairly rapid reduction in rates?
No it means QT is going too slowly and needs to be accelerated.
I am mostly a novice at treasury market, but I will give it a shot. Long term bond market is saying that economy can’t handle high policy (short term) rates and short term rates will return to a level where getting the current long term rate is an acceptable investment.
It’s easier for me in the US to do the numbers. If 10 year Treasury is 3.4% the market is saying short term rates are going to average around 2% for next 10 years or why take the duration risk. If policy rate is currently 4.25%, you are betting it’s not going to stay elevated very long or you would just stay in t-bills for 10 years.
Nope. If Fed unloads $1T of its 5+ year maturity bonds today 10 year yield will spike massively and yield curve will uninvert immediately. The yield curve is massively distorted by massive Fed balance sheet due to previous QE. It’s inverted because QT is not keeping pace with rate hikes.
Fed is approximately 15% of the market and can’t afford to blowup the market by instantly selling 1T in one day. Fed can nudge but they can’t spook.
Yes of course Fed won’t do that.
It’s simply a thought experiment to prove that your interpretation of the inverted yield curve is wrong.
They had no issue printing $5 trillion in 2 years.
I fully agree. What the inverted yield curve tells you is that the Fed needs to speed up the unwinding of their balance sheet. That investors are still prepared to pay below inflation yields for treasuries tells you everything.
10-year and longer duration bonds are “uninvestable”. They present too much risk for 95% of your investors. Deflationary crashes and hyperinflationary spikes cannot be ruled out in the medium term. The 10-year bond is a bet on black or red.
With experimental policies, the Fed has converted long-term treasury bonds from safe steady investments to speculative bets.
On top of that, you have elevated currency fluctuation as far as the eye can see.
Bonds with 0-5 year duration, commodity producers, metals, and low-debt asset rich companies with cash flow are your safest bets right now.
@YuShan
“That investors are still prepared to pay below inflation yields for treasuries tells you everything.”
Not so fast. Versus the trailing 12 month inflation rate, yes, sure. What is the current, and expected forward inflation rate? Investors expect the inflation rate to be below the current 10yr yield.
Well, millions of people got substantial COLA increases kicking in this month so there is pressure again on pushing prices up. And energy prices are going back up. I think they are making a mistake (and the Fed, too).
One of my neighbors is retired. We get to talking sometimes because our dogs like each other. He just got a huge increase in his SS, so he went out and bought a new SUV.
NO FREAKING WAY z6:
Yes, SS and others increased,,, by 8.7% for SS,,, and reading very similar others.
Inflation AT LEAST 15% for almost everything ”NEEDED”!!!
Gotta admit that I did NOT include this possibility, now probability that POTB would do this to rob my wonderful wife of her actual income/ability to pay NEEDs…
Gonna be ”some hell to pay” far damn shore…
They’ll be back.
The core inflation rate in Canada is still 5.34 percent (January 2023 figure) and has been in that tight range for the past 6 months. The core inflation rate was 5.34 percent in October last year. Not so long ago the Bank of Canada stated they look more at the core inflation rate. No talk about about the core inflation rate now.
The MLS price index has declined from the blow off peak back to roughly the long term linear trend line of price increase since the dawn of QE in 2009, Increasing from 300 k to 700 k over the past 14 years suggests an imputed asset inflation rate of 6.3 pct.
I suspect that it is no coincidence that the flawed, calculated and reported rate of inflation by the BoC is settling at a similar rate as the long term rate of MLS housing price inflation.
I also suspect that the widely reported long term rate of 2% inflation is and was flawed. That the real rate of inflation has been closer to 6 pct since QE was initiated, 14 or 15 years ago.
Carrying this thought experiment one step further, at 2% rate of inflation, the MLS price would be expected to have increased from 300 to 395 K in 14 years, which I suspect is more in line with the actual, nominal increase in household income over this time period.
Although 4.5 pct FFR is still woefully negative behind the 6 pct plus inflation it is much closer to a neutral rate and sufficient to force the price back to the long term affordability point of 400 k rather than the current 700 k. Which suggests that without rate cuts and continuous, inflationary monetary stimulation, the general housing price bottom or equlibrium in the Canadian MLS housing price index lies some 40 pct below the current level.
perhaps
Sorry Wolf, I can’t hear you over the roar of the markets :-P
Your comments are really annoying.
That’s the purpose, that’s his schtick, LOL
LOL. I should have known better than to feed the troll.
Finally, a real use for the net! We can all go to the comedy club without having to drive. And the bar tab is lower, even with inflation.
Arya was a woman, but they never disclosed their pronouns.
elbowwilham,
Hahaha, yes, you finally made me look it up:
Wikipedia:
1. Man, India, “Arya”: Jamshad Cethirakath (born 11 December 1980), known by his stage name Arya, is an Indian actor and producer who predominantly appears in Tamil cinema and a few Malayalam and Telugu films.
2. The Sanskrit word Arya is a surname and a masculine and feminine given name, signifying “honorable” or “noble”. In India and Iran it is a popular masculine given name and a popular surname. In the historically Indianized country of Cambodia, it is usually a name given to girls.
3. Woman, fiction, “Arya Stark: fictional character in American author George R. R. Martin’s A Song of Ice and Fire epic fantasy novel series, and its television adaptation Game of Thrones, where she is portrayed by English actress Maisie Williams.
…the modern conundrum of the inversion of the classic aphorism of: ‘art imitates life’…
may we all find a better day.
Inflation is not over here in Canada. Wage increases at the lower end of the scale continue to lag inflation, and real wages are still falling. There are two types of inflation. One type for the rich who have assets and like inflation, and everyone else whose main concern is day to day living and the cost of living. Unfortunately the BOC, policy makers, media and financial industry are concerned with the rich. The rich want a pause then a pivot.
It’s not over in the U.S. either. I’m still seeing regular increases in costs, especially in skilled labor like auto mechanics, oil changes, haircuts, etc.
My San Francisco Bay K-Cup coffee order (120 cups every 8 weeks) just this week went from $47.89 to $56.69 in one shot. Still less than Amazon.
“An item(s) in your subscription order will increase to $56.69 starting in February, unless you choose to make a change to your account.”
That’s quite an increase, percentage wise.
” The rich want a pause then a pivot.”
Please stop repeating this tripe it degrades this comments section.
It would be more effective, and useful, to explain why the comment is tripe. Is the degrading of the comment section your concern?
These central bankers really need to give up the idea of a soft landing and just crash the plane so they can vanquish inflation. If they try this soft landing that will simply extend the duration at which interest rates must remain higher and inflation will become very entrenched.
I wish that these bankers were asked REAL questions, like how can anything be normalized in an economy when central banks still have trillions of dollars of debt on their balance sheets? How can those multi-trillion dollar balances be eliminated?
“I wish that these bankers were asked REAL questions, like how can anything be normalized in an economy when central banks still have trillions of dollars of debt on their balance sheets? ”
In my opinion, slowly. Like slowly boiling a frog. The frog doesn’t notice until it is cooked.
The rate hikes last year were too fast. It put a shock into the markets.
They were too fast because of lack of foresight by the Fed. They should have started in 2020/2021 and increased gradually. I believe we would not have seen the equity and housing bubble like we did.
The Fed certainly wasn’t cautious in 2022 and we are seeing the bubbles deflate. The bubbles that never should have happened if the Fed wasn’t so cautious in 2020/2021. I don’t know if cautious is the correct word when the Fed actively drove rates to zero and intentionally kept QE.
Due to the bubbles, now you have psychological inertia. Even though my house appreciated 40% in 3 years, it is devastating to sell 20% off from the peak. Even though due to bloated stocks, my wages increased 30% over the last 3 years, now I may be looking at a 20% pay cut this year due to stocks deflating. I suspect most who received a 30% raise had a huge change in habits and a higher living standard due to this windfall. Can they take a 20% pay cut without a lot of pain? If you have billions/millions in the bank as a buffer, yes. If you have little savings, then no.
This will affect the middle and upper middle class the most.
The Fed is driving the economy similar to a poor driver.
Foot to the floor with the brakes followed by pedal to the metal acceleration. The markets are getting whiplash.
Maybe they need more AI and less martini lunches.
Seen it Bob
Haha, worse yet, they promise us they can stop the front of the car (housing, wages) and keep the back of the car (the main street economy) going 70 mph.
Put on your seat belts!
For some reason the central banks think that time will heal all structural wounds in the financial and monetary systems globally.
I too wish they would just get this over with sooner than later as dragging it out could turn a few bad financial years into a bad decade instead.
So be it SP500 up 25% to 5,000 or SP500 down 25% to 3,000…the Fed needs to decide, and soon as else they are going to affect the outcome of the 2024 elections in massive ways if inflation gets out of control next year.
The Fed is not only a monetary and fiscal dictator, they are slowly turning into a political dictator also. I think the Fed will do more future societal harm politically than they inflict currently economically if that pattern continues, as the ultimate power to print is the absolute power to control in today’s modern society.
Personally I believe the motto should be “Don’t Trust the Fed”…
We’re pausing on the pace of hesitation as it relates to uncertainty and apologize for the transitory noise created by this current message.
Now I was under the impression that it is entirely incorrect to abbreviate the word “of” with capitol letters, so then the BOC should just be BC. But why not change it now to BN because when this clown act gets through tying all those elongated balloons into something resembling a lifeless wienerdog we might need to call them BancaNada.
I much appreciate your subtle sense of humour Wolf; it makes my day.
We’re pausing to assess whether we should pause to assess whether we should pause to … [recurse]
Reminds me of old jokes like Department of Redundancy Department.
So FED pausing interest rate will affect short-term interest rate while continuing QT will affect long-term interest rate (make it go up). Will this action help un-invert the yield curves? Is that the reason for doing this?
I think it’s interesting the BOC is signaling a pause before the FED has done so. If the Fed continues to hike, won’t a pause probably weaken the Canadian Dollar against the USD and thereby be inflationary? I wonder what the Fed will say about future increases after it meets next week.
Jerome Bowel will bring out his squirt gun and shoot a 25 basis point hike into the raging inferno, then announce they are going to wait and see the effects of the evaporated stream in order to assess their next move, as the inferno chews through millions more acres.
“If inflation follows the instructions issued by the BOC, and “as things start to get more back to normal, at some point, yes, we probably will be thinking about some modest cuts in interest rates,” Macklem said.”
They are already talking about rate cuts and they haven’t even been hiking for a year, nor have they handled inflation. These people need to be removed from office – ALL OF THEM – and replaced with people who are not recklessly destroying society.
“They are already talking about rate cuts” is a wildly disingenuous take even for you.
Depth Charge is quoting the article. Anyone reading his comment understands the context of the possible rate cuts since it is quoted verbatim. How is that a disingenuous take, much less wildly so?
He is quoting it and then interpreting it to mean what it clearly does not mean.
If they cut rates the Chinese will drive home prices to new highs in a very short period of time and rents will skyrocket with 500,000 new immigrants coming in every year to 2027. That will force the minimum wage to 20 dollars an hour.
Pausing the rate below the inflation rate proves inflation is here to stay in Canada. Expect labour issues to be the new norm, and rates to stay high much longer than the market is expecting. There will be no cuts this year in Canada or the US; in fact maybe rates will reset back to long term normals. There is a huge amount of debt to “inflate away”. Why would you own 10 year bonds? The money they will pay you back with will have lost purchasing power every year. The bond market thinks 0-3% is normal and this is just a short-term blip in rates.
“Why would you own 10 year bonds? ”
To buy a house. Even if CPI doesn’t decline (I think it will), housing is going to tank. Can put the principle and interest towards a house.
…speaking of plane crashes, a tangentially-applicable old joke:
Two wealthy Irishmen went to Canada for their annual moose hunt in the wilderness, for which they chartered a plane and experienced bush pilot.
The hunt went well, with each gentleman bagging a very large moose.
Presenting the pilot with their prizes, they were met with opposition due to the fact that their aircraft would be too-overloaded for any kind of safe flight.
“Mr. Pilot,” they responded, “we have paid you a great deal of money to ferry us and the hunt out of, and back to, civilization. We took off just fine with a similar bag last year, so we’re sure we will again…”.
The pilot shook his head, crossed himself, loaded all and sundry, took off, and crashed less than a mile later.
The Irishmen, surrounded by dead moose and pilot, struggled out of the carnage.
After a few minutes reassembling their wits, one asked the other: “…well, where do you think we are?”
“I’m not completely sure,” said the other, “but it looks to be pretty close to where we went down last year…”.
may we all find a better day.
“Learn from your mistakes, so that one day you can repeat them precisely.” — Trevor Goodchild
Basically BoC is sold out to rich people.
Its a pause now and after some time it;d be a pivot.
If they were really serious about taming inflation, they would have hiked more and have shown hawkish behavior.
Even if the inflation goes to zero, many people have been priced out of market to live a decent middle class life.
I expect US FED to show similar stance net week.
Let’s wait.
For 2 people we spend $1200/month here in Canada on groceries and thats carefully watching prices. 5 years ago we spent $1000 to $1200/month average when we had 3 teenagers at home. Prices are crazy here. $125-$150/hour for a mechanic. $1.60/litre for regular fuel and $2.15/litre for diesel. $500k for an old, small handyman’s special house.
Inflation seems under reported.
The real estate speculators want a freeze, then an immediate pivot to inflate the bubble further.
There is a reason why these tone deaf politicians in office claim that there is a “labour shortage” which requires the floodgates to be opened at half a millions or more a year, while homelessness is a crisis across Canada.
More people inflate the demand for housing.
The reason we here about the labor shortage is because we have a severe labor shortage. Canada’s immigration is our platinum ace in the hole.
No wonder almost every day there is some sort of social unrest in Toronto public transit.
Canadians aren’t being hired, and instead, the government and the business elites are importing labour en masse at the expense of Canadians.
Young people appear to see no future in Canada, hence why they are committing so many crimes these days in the cities.
It wasn’t like this even five years ago. Teens weren’t doing this unless they were in gangs, and even then, they kept it down low. They weren’t doing the news that much because that’s too much heat.
Cool story bro. No one benefits more from imported labor than native labor. I’m not working in my Grandpa’s nursing home.
Seems to be a typo in there. So let me fix it for you: “No one benefits more from imported labor than those who hire them.”
The companies and their owners want cheap labor, but not the people who’re replaced by cheap labor. Importing labor creates unlimited supply of cheap labor, so you have limited demand in the US for labor and unlimited supply of cheap labor globally = systematic wage repression.
The top 10% in the US, who own most of the stocks, have benefited the most from wage repression. The bottom 50%, whose wages have been systematically repressed have benefited less from the repression of their own wages, I’d say.
Wolf – 450’+ over the center field fence!
may we all find a better day.
The RE speculators want a freeze, then an immediate pivot to inflate the bubble further.
There is a reason why these tone deaf politicians in office claim that there is a “labour shortage” which requires the floodgates to be opened at half a millions or more a year, while homelessness is a crisis across Canada.
More people inflate the demand for housing.
“Rate cuts not on the table: “We’re not talking about cuts. We’re not even thinking about cuts…,” Macklem said.”
If you want to appear credible, you should say “we’re not even thinking about thinking about” – a double down, like our Fed did….oh wait.
Not long after this not-thinking-about-thinking-about comment by Powell, the Fed got hawkish, and got more hawkish, and got more hawkish, and raised faster and further than anyone predicted, and it got QT going, and by now cut $500 billion from the balance sheet. Same with the BOC. With every meeting, they were crushing the pivot mongers at ZH and elsewhere. That’s what you should be talking about, in terms of “credibility.”
A little “boots on the ground” reporting from Southwestern Ontario:
There are plenty of listings and relative few “Sold”signs.
Some houses get re-listed at lower prices, so far still not moving.
A talk to a local credit union yielded the advice to wait with buying for two years if possible at all.
The argument presented goes as follows.
The average mortgage from three years ago is some 375 K, payment some 1700$ @ 2.8%.
Stress test rate was 4.8%.
Current rate is about 5.8%.
The payment becomes unaffordable, it would be some 2700$.
How is that going to play out?
I want to add the current prices:
The asking price is somewhere between 650 and 900 CAD.
We had the Bush/Obama crash and stimulate
The Trump pandemic crash and stimulate
The Biden infrastructure stimulus
So a crash now would really be troublesome.
Would they stimulate again? The Republicans won’t do it.