*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[blankall]

Originally Posted by bizaro86

Actual real interest rates are still very negative. The real rate is the interest rate minus the inflation rate, so it's negative as inflation is still higher than interest rates. That means savers lose purchasing power on their savings - ie if you save $100, you get say 3% interest so in a year you have $103. But the stuff you could have bought with $100 now costs $107, so you can't buy it.

And of course the $3 is income so you have to pay tax on it, so you really probably only have $102.

Inflation is absolutely a cost to savers, while higher interest rates are a cost to borrowers, and inflation is higher than interest rates, so borrowers are the net beneficiaries right now.

Currently, I'd agree that no one is in all that great of a position.

However, for people looking to buy houses, the prices are stabilizing and will fall. However, the cost to get a mortgage is increasing dramatically. Savers will be able to save and gain some profits on saving. Even if overall value, accounting for inflation, is falling, relative to housing it's increasing.

But even in your scenario, the smart thing to do might be to just buy a house outright, once prices have hit the bottom, which will still be too high for most people with a mortgage. Once again, those with capital are benefiting.

[The Fonz]

https://www.bbc.com/news/business-62973376
US interest rates hit 14-year high in inflation battle

The US central bank has pushed interest rates to the highest level in almost 15 years as it fights to rein in soaring prices in the world's largest economy.

The Federal Reserve announced it was raising its key rate by another 0.75 percentage points, lifting the target range to 3% to 3.25%.

Borrowing costs are expected to climb more - and remain high, the bank said.

The move comes despite mounting concern that the cost of controlling inflation could be a harsh economic downturn.

Federal Reserve chairman Jerome Powell has said the rate rises are necessary to slow demand, easing the pressures putting up prices and avoiding long-term damage to the economy.

[bizaro86]

Originally Posted by blankall

Currently, I'd agree that no one is in all that great of a position.

However, for people looking to buy houses, the prices are stabilizing and will fall. However, the cost to get a mortgage is increasing dramatically. Savers will be able to save and gain some profits on saving. Even if overall value, accounting for inflation, is falling, relative to housing it's increasing.

But even in your scenario, the smart thing to do might be to just buy a house outright, once prices have hit the bottom, which will still be too high for most people with a mortgage. Once again, those with capital are benefiting.

The people who are benefitting are those who have lots of fixed rate debt. It doesn't seem like a big deal with $100 and $102, but if you owe $600,000 at a fixed rate and the money you pay back with is only worth the equivalent of $500k when you pay it back that's a pretty significant gain.

[blankall]

Originally Posted by bizaro86

The people who are benefitting are those who have lots of fixed rate debt. It doesn't seem like a big deal with $100 and $102, but if you owe $600,000 at a fixed rate and the money you pay back with is only worth the equivalent of $500k when you pay it back that's a pretty significant gain.

That's assuming their wages are increasing to pay down that debt. With increased cost of living, they could just be incurring more debt.

[bizaro86]

Originally Posted by blankall

That's assuming their wages are increasing to pay down that debt. With increased cost of living, they could just be incurring more debt.

I mean, the value of the money is independent of people's wages, housing prices, and whatever you happened to spend the money on. Once you owe it, having it become less valuable is a good thing.

It'd be like of you owed a debt denominated in orange juice (100 cartons) and Tropicana shrinkflationed them to 1.7L from 2L. Whether your wages go up or not, that still benefits the person who owes the orange juice and hurts the person who is owed the orange juice.

The amount of orange juice your work pays you is independent from that.

[blankall]

Originally Posted by bizaro86

I mean, the value of the money is independent of people's wages, housing prices, and whatever you happened to spend the money on. Once you owe it, having it become less valuable is a good thing.

It'd be like of you owed a debt denominated in orange juice (100 cartons) and Tropicana shrinkflationed them to 1.7L from 2L. Whether your wages go up or not, that still benefits the person who owes the orange juice and hurts the person who is owed the orange juice.

The amount of orange juice your work pays you is independent from that.

I get your point. That in absolutely value the debt is going down due to inflation. However the interest rates on that debt is going up, as are other expense. Most people also carry their debt as mortgage debt. The price of real estate is falling.

There are very few people that have a stable serviceable debt, that isn't tied to a feeling asset.

[Leondros]

Originally Posted by blankall

I get your point. That in absolutely value the debt is going down due to inflation. However the interest rates on that debt is going up, as are other expense. Most people also carry their debt as mortgage debt. The price of real estate is falling.

There are very few people that have a stable serviceable debt, that isn't tied to a feeling asset.

Unless they are going up in tandem, either interest rates outpace inflation or inflation continues to outpace interest rates. There is are net winners in these situations purely from a credit spread perspective. Of course assuming the inflation metric is a good determination of purchasing power which varies individual by individual based on spending habits. I personally believe the centrals have gotten to the point of putting to much focus on inflation and ignoring other metrics such as unemployment, job vacancies and other important growth metrics.

[puckedoff]

Doesn't inflation inflate house prices too? If we sustain 6% inflation for a three years say, wouldn't house prices naturally be ~19% higher before impacts of slowing real estate market etc.

[Firebot]

https://www.ctvnews.ca/business/bank...tion-1.6076297

Bank of Canada governor says economic stimulus should have stopped earlier to tame inflation

Everyone is to blame except the Bank of Canada, according to the Bank of Canada.

These clowns where calling inflation transitory last year at this time. They left interest rates at historically low levels while this unprecedented printing of money through stimulus and cheap credit continued well past necessary and now pointing fingers to say we shouldn't have borrowed so much.

A reminder of this Bank of Canada statement in 2020 encouraging Canadians to go out and get housing on cheap credit.

https://www.bnnbloomberg.ca/interest...klem-1.1465901

“Our message to Canadians is that interest rates are very low and they’re going to be there for a long time,” Macklem said at a press conference Wednesday.

His comments came after the central bank announced it is holding its key interest rate at 0.25 per cent in response to what it calls an “extremely uncertain” economic outlook due to the COVID-19 pandemic.

“If you’ve got a mortgage of if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time,” Macklem said.

The Bank of Canada failed to act responsibly, did not heed obvious warnings when inflation was rising, and they are trying to close the gate after all the sheep are out. When inflation picks up momentum, it's incredibly hard to stop it as inflation just becomes accepted.

And the solution is a forced hard economic crash. 2023 will be a very hard year for many.

[Slava]

Originally Posted by Firebot

https://www.ctvnews.ca/business/bank...tion-1.6076297



Everyone is to blame except the Bank of Canada, according to the Bank of Canada.

These clowns where calling inflation transitory last year at this time. They left interest rates at historically low levels while this unprecedented printing of money through stimulus and cheap credit continued well past necessary and now pointing fingers to say we shouldn't have borrowed so much.

A reminder of this Bank of Canada statement in 2020 encouraging Canadians to go out and get housing on cheap credit.

https://www.bnnbloomberg.ca/interest...klem-1.1465901



The Bank of Canada failed to act responsibly, did not heed obvious warnings when inflation was rising, and they are trying to close the gate after all the sheep are out. When inflation picks up momentum, it's incredibly hard to stop it as inflation just becomes accepted.

And the solution is a forced hard economic crash. 2023 will be a very hard year for many.

How long is transitory though? And in all honesty, were it not for the war in Ukraine, I think that a sizeable portion of the inflation we've seen doesn't hang around. Maybe, just maybe "these clowns" were right?

[Firebot]

Originally Posted by Slava

How long is transitory though? And in all honesty, were it not for the war in Ukraine, I think that a sizeable portion of the inflation we've seen doesn't hang around. Maybe, just maybe "these clowns" were right?

They silently stopped using the word transitory in late 2021.

https://ca.finance.yahoo.com/news/ba...151801170.html

How can you be right when you even stop using the term that directed your policy for a year?

https://www.cnbc.com/2021/12/13/el-e...f-the-fed.html

Economic pundits in the US calls the fed transitory call as the worst inflation call in history. The BoC made that same horrendous call.

Inflation was skyrocketing way before Feb 2022 and the war is a cheap excuse to fall upon. It exacerbated inflation but inflation was already in a spiral by February and had already taken hold.

The BoC failed to adapt to changing economic conditions and made a horrendous call, period. That they are raising rates in order to combat unhinged inflation is evidence they failed.

[Fuzz]

It's easy to go throwing all the blame at the BoC, but that doesn't really explain why so many of our peers are experiencing similar levels of inflation, so it rings a bit hollow to me. Did they all make the same mistakes, or was it unavoidable?

[pseudoreality]

Originally Posted by Fuzz

It's easy to go throwing all the blame at the BoC, but that doesn't really explain why so many of our peers are experiencing similar levels of inflation, so it rings a bit hollow to me. Did they all make the same mistakes, or was it unavoidable?

I found this chart interesting.

https://tradingeconomics.com/country...inflation-rate

Why is Switzerland sitting at 3.5% and France at 5.9%, while the UK is 9.9% and the Netherlands are an eye-popping 12%?

[opendoor]

Originally Posted by Firebot

https://www.ctvnews.ca/business/bank...tion-1.6076297

Everyone is to blame except the Bank of Canada, according to the Bank of Canada.

These clowns where calling inflation transitory last year at this time. They left interest rates at historically low levels while this unprecedented printing of money through stimulus and cheap credit continued well past necessary and now pointing fingers to say we shouldn't have borrowed so much.

Unprecedented? Maybe if your memory only goes back 5 years. In the last 2.5 years Canada's M2 has increased by about 28%, for an annualized rate of just over 10%. Compare that to prior periods:

1970-1980: 15.7% a year

1980-1990: 10.77% a year

2007-2009: 9.97% a year

2020-2022: 9.14% a year (assuming 2022 keeps its current pace).


So in a short window centered on a crisis situation, Canada's monetary aggregates are still increasing at a lower rate than they did as a matter of course during the '70s and '80s or what they did during the financial crisis. And 2022 is on pace to see the slowest growth in M2 in 25 years, so the risk of year after year increases in money supply like happened in prior decades is basically zero.

[mrkajz44]

Originally Posted by Firebot

Everyone is to blame except the Bank of Canada, according to the Bank of Canada.

These clowns where calling inflation transitory last year at this time. They left interest rates at historically low levels while this unprecedented printing of money through stimulus and cheap credit continued well past necessary and now pointing fingers to say we shouldn't have borrowed so much.

A reminder of this Bank of Canada statement in 2020 encouraging Canadians to go out and get housing on cheap credit.

The statement about low interest rates was made in July 2020. Is 2 years not a long time? And when you consider where we were in the pandemic, it was probably a statement made to help bolster consumer confidence. At the time, it was very unlikely to see interest rates rising soon - all policy at that point was to keep enough dollars in people's pockets to keep the country running. It was nearly impossible to foresee the inflation issues we are having now back in July 2020.

The Bank of Canada failed to act responsibly, did not heed obvious warnings when inflation was rising, and they are trying to close the gate after all the sheep are out. When inflation picks up momentum, it's incredibly hard to stop it as inflation just becomes accepted.

And the solution is a forced hard economic crash. 2023 will be a very hard year for many.

In terms of where inflation is at right now, it's actually stopped it's momentum and we are sitting pretty stagnant for the past few months. Because the figures reported are always year over year, we will continue to see some high numbers for several months. But the fact is that CPI has only gone up from 151.3 to 152.4 from May to August 2022, less than 1%. This is annualized around 3%. From the looks of things we appear to be past the period of large inflation and things are cooling down as hoped.

Source: https://www150.statcan.gc.ca/t1/tbl1...501%2C20220801

[White Out 403]

Some steaming hot takes about high interest rates are going to help people budget better and maybe have less debt. I mean that's such an outlandishly stupid take I can't even be bothered to quote it. That will of course go up because everything is becoming more expensive. Some real double meat Subway takes here

[Slava]

Originally Posted by Firebot

They silently stopped using the word transitory in late 2021.

https://ca.finance.yahoo.com/news/ba...151801170.html

How can you be right when you even stop using the term that directed your policy for a year?

https://www.cnbc.com/2021/12/13/el-e...f-the-fed.html

Economic pundits in the US calls the fed transitory call as the worst inflation call in history. The BoC made that same horrendous call.

Inflation was skyrocketing way before Feb 2022 and the war is a cheap excuse to fall upon. It exacerbated inflation but inflation was already in a spiral by February and had already taken hold.

The BoC failed to adapt to changing economic conditions and made a horrendous call, period. That they are raising rates in order to combat unhinged inflation is evidence they failed.

Oh I get it, it's super fun to pile on the central banks. So, how long is transitory? I mean we didn't have much of an inflationary problem until a year ago (and that's really being quite generous with the data). Inflation is dropping now, which is fairly evident. So, we're at the one year mark if we take a few liberties. Seems pretty transitory?

The war is hardly a cheap excuse though. Have a look at the price chart for oil for 2022 and to the surprise of no one (well perhaps you?), the price rockets up as Russia invades because of supply fears.

[opendoor]

Originally Posted by pseudoreality

I found this chart interesting.

https://tradingeconomics.com/country...inflation-rate

Why is Switzerland sitting at 3.5% and France at 5.9%, while the UK is 9.9% and the Netherlands are an eye-popping 12%?

Switzerland has structural issues that have seen them move in and out of deflation over the last 20-25 years, which isn't really a good thing given that they have negative interest rates. The one positive is their inflation stays relatively low during periods like now, but the rest of the time it's a bad thing (similar to Japan).

For the others, it mainly comes down to energy. Most of France's electricity and a good portion of their heat (at least until half their nuclear fleet went offline) was domestically produced and not subject to rising gas prices. Whereas the Netherlands is almost totally reliant on fossil fuels for energy.

[The Fonz]

Purely my opinion - I think the BoC would like to ease back on the increases going forward, but now we’re just along for the ride with the Fed. They increased by 75bps yesterday? BoC will now need to increase by 75bps on October 26th, otherwise we risk/expect a further weakening CAD, which = increasing inflation.

[Slava]

Originally Posted by The Fonz

Purely my opinion - I think the BoC would like to ease back on the increases going forward, but now we’re just along for the ride with the Fed. They increased by 75bps yesterday? BoC will now need to increase by 75bps on October 26th, otherwise we risk/expect a further weakening CAD, which = increasing inflation.

Well it's interesting because the BoC has been ahead of the Fed through this process. The CAD and it's "under-performance" is really only against the USD, which is more of a flight to safety than anything else. Against other currencies though, the CAD has been quite strong in 2022.