I am almost always correct in predicting the Bank of Canada’s interest rate hike/pause decision for the last year or two. I have been consistently logging my views on how Canada is performing economically and how that is being translated to interest rates.
The one thing we knew in the last two years us - the central bank knows shit when it comes to economy.
This has been the classic case of saying the same thing and beating the dead horse. The Bank of Canada(BOC) raised the overnight lending rate by 25 basis points this month. This was not predicted by most of the analysts as the bank paused the rate hike for the last three months despite saying they will stay hawkish.
I (and other analysts) was quite confident that the bank does not have enough data to support their hike. The numbers were signalling towards high economic activity, high inflation and lower than expected unemployment numbers.
The 3.5% increase in GDP that I reported on my last @leofinance post was the last nail in the coffin it seems. Inflation was already higher and the job market was already tight. The bank officials did not have anything else to hold onto and they decided to raise the rates so that the market receives the tightening signal.
That means, we have a higher interest rate in June with the possibility of another increase in July since the indicators will not change in the next three months to pivot bank officials from their hawkish outlook.
Inflation is sticky
The bank official has always been saying that their target is to bring inflation down to 2%. How are they doing it? They are tightening the economy and making it difficult to borrow money. That means less money to spend and low economic activity.
If that’s the case how the fuck is our economy growing by 3.5%. What is causing the growth and why the economy is not slowing down as expected?
Government spending
The government spending has been unprecedented. While the bank is tightening the money supply by raising rates the government is distributing money in rebates. It is always good to support the needy population but it is also the government's responsibility to make the economy right.
The government of Canada gave a $500 million gift to Ukraine while asking Canadians to donate money to douse the wildfire last week. Not sure where we are going with the decisions that they are making.
The red hot housing market
This is a story that never fails. The housing market picked up pace this season and surpassed expectations that added the fuel to economic activity. The rate was stable for a few months and the houses were sold over asking. It shows how much demand is there in the market and how vulnerable we are in terms of a real estate based economy.
I wrote an article a while ago on our household debts which explained why Canada will have it difficult if the rate continues to go up.
The few reasons behind this inflation are the Ukraine war, supply chain issues and the energy price. The banks may need to raise the rates until the general public is no longer living their life if they want to use the same old economic tools that they devised in the 1980s and 1930s to tackle the problems that they do not want to look at.
Expectations
The market is expecting two or three more hikes this year given the three indicators the bank is using are never coming down.
Job market lost its strength as the report that came out after the bank’s decision noted 17K job losses last month. The number is 37K if we only count permanent positions. It is not only a number but those are families with no income. That is how the inflation is coming down which was created by the government by mismanaging funds during the pandemic.
We may see another hike in July and one more hike after that. The bank is predicting the inflation to be at around 3.5% this summer. The US CPI number came at 4% today and we may follow suit.
Whatever the future is, I am doomed. I need to pay more for my mortgage debts and other credit card loans. I am fucked.
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The manipulation and pain these idiots are causing is crazy. I think one of the craziest things are variable interest rates on mortgages. Does Canada to fixed interest rate loans too? I know the US has variable ones but we also have fixed, which is thankfully what we did.
The tools they are using are indeed out dated, for what they are claiming they do. Then again though, with the WEF puppets in power there you know they don’t care about your well being, but to make us own nothing.
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