*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[Izzle]

Originally Posted by The Fisher Account

Man, this self-righteous victim blaming is getting tiresome.

I tried to be careful with my words. I only highlighted out the ones that took on more house than they needed, presumably for vanity purposes (look at me! I got the biggest house) as opposed to needing one for shelter (got a roof over my head). I have no sympathy for those peeps.

First time home buyers who bought a moderate house are no doubt feeling the pinch. I hope that their prudent decision to purchase less house has somewhat shielded them from enormous pain.

[bizaro86]

Originally Posted by BlackArcher101

So let me get this straight.... the people who are in dire straights are people, who in the middle of a pandemic and massive housing increases, sought out advice from the BoC on if they should buy a house, and then did so based solely on that advice. Then even though rates were literally bottom barrel, they thought variable was the correct was to go instead of a long term fixed rate, locking in that historically low bottom barrel rate?

Did any of us here do anything like that thinking "oh man, the BoC said that, so were golden, all in baby! No reason to worry about anything, were in the middle of a pandemic though so nothing could go wrong. Hell, lets get some LOC's and buy some cars!". Is that all it took? People were doing it anyways, they felt left out of the housing increases and where they were really lied to is that "housing always goes up, can't go wrong", then bought a $1mil house in ON.

Who in their right mind thought any of this was sustainable? And then to blame the BoC for not predicting the future?

Hell, I know when I bought my house, I sure didn't look up to see what the BoC thought was going to happen in order to make my decision. Certainly looked at many factors, went fixed, ended up paying about 0.5% more than if I stuck with variable, but hey, I'm not a risk taker.

Even as inflation and rates were going up, people were still recommending that variable rate is always better, in fact some never did switch to recommending fixed. And these are the people are are actually giving people mortgages, so where's the uproar over them? Or are we going to keep blaming the BoC like somehow they were the pariah of advice that everyone goes to for making their decisions.

No, people who levered up massively are idiots. But I saw broker commentary at the time referencing that comment and suggesting variable, which was discounted to fixed fairly substantially for awhile. A huge percentage of people who got mortgages went variable, including on renewals.

I don't think someone whose broker quotes a bank of Canada promise to keep rates low for years and thus takes a variable rate is a greedy fool.

Not talking by book on this one either - I have a very small percentage of my outstanding debt as variable. But I'm reasonably financially sophisticated and can make the same calculations you discussed above. The people who got hurt are the ones who can't but want to own a house like they've been told is the best/Canadian thing to do their whole lives.

[Slava]

Originally Posted by bizaro86

It's strong but it isn't objectively wrong either.

1) he said interest rates would remain low

2) then he raised them

He has direct control over interest rates. I'm not saying he shouldn't have raised them, that was the right choice to fight inflation. But he shouldn't have said they'd remain low for years, because that caused people to make unnecessary economic mistakes. Basically making the economic pain worse for no gain.

I really hate it when powerful people hurt those weaker/less educated than themselves, which is absolutely what happened here.

He either knew or should have known that inflation was a likely outcome from worldwide massively expanding money supply and low interest rates, and that if it came through he'd have to go back on that and raise rates. I guess its also possible he's an idiot, but I think it's more likely he knew that wasn't true and said it anyway to further short term motives at the time.

This is just hindsight bias. When he made those comments there were not all of the supply-chain issues we've seen over the past year. And frankly, it's hard to argue that the war in Ukraine hasn't caused a lot more of a spike in inflation than could've been expected.

But still...what would you have them do here? Just stick to the 0.25% and be able to tell everyone that they said they'd keep rates low, so they were doing that? It's preposterous.

[Fuzz]

Originally Posted by Slava

This is just hindsight bias. When he made those comments there were not all of the supply-chain issues we've seen over the past year. And frankly, it's hard to argue that the war in Ukraine hasn't caused a lot more of a spike in inflation than could've been expected.

But still...what would you have them do here? Just stick to the 0.25% and be able to tell everyone that they said they'd keep rates low, so they were doing that? It's preposterous.

It's kind of the same as the "remove covid restrictions" crowd. They don't like reality, but they have no better solution. Sometimes they do what they have to do.

[Jason14h]

Originally Posted by The Fisher Account

Man, this self-righteous victim blaming is getting tiresome.

Making a poor financial decision about what type of mortgage to take out doesn't make you a victim.

I've had a lot of stock value wiped out too with rising rates and the changing economic environment, guess I am also a 'victim'

When do people need to start taking responsibility for their own actions?

If you did not understand interest rate risks and historical trends, and potential consequences of a rising rate, you are not a victim.

Do i feel a need to patronize they people or call them out ? No, and I wouldn't. But they are not victims and it isn't victim blaming to say they got themselves into this predicament - Because they did.

[bizaro86]

Originally Posted by Slava

This is just hindsight bias. When he made those comments there were not all of the supply-chain issues we've seen over the past year. And frankly, it's hard to argue that the war in Ukraine hasn't caused a lot more of a spike in inflation than could've been expected.

But still...what would you have them do here? Just stick to the 0.25% and be able to tell everyone that they said they'd keep rates low, so they were doing that? It's preposterous.

No, like I said now that we have inflation they need to raise rates. But he never should have told people he wasn't going to for years.

I don't agree it's hindsight bias. He's an economist. He should have known massive increases in money supply via stimulus spending and quantitative easing worldwide had at least a possibility of causing significant inflation. Those policies increase inflation by design, so it shouldn't seem impossible that they worked. Once you know that, then promising to keep rates low is a foolish thing to do, because you're making a promise you may not be able to keep.

Ukraine/supply chain issues are a factor for sure, which wasn't foreseeable. But we had a giant increase in money supply, much of which was done in a way (direct stimulus to consumers) that also gives it a high velocity of money, since consumers are more likely to spend the cash than bondholders who get bought out in QE. I'm not saying he should 100% know the future, because I agree he isn't an oracle. But this was an eminently possible future so he shouldn't have promised he wouldn't take the obviously required action.

[bizaro86]

Originally Posted by Fuzz

It's kind of the same as the "remove covid restrictions" crowd. They don't like reality, but they have no better solution. Sometimes they do what they have to do.

The analogy here would be if a government said they would never ever impose covid restrictions or vaccine mandates no matter what. That would almost certainly reduce vaccine uptake/public health compliance, which makes restrictions/mandates more likely to be necessary to control the situation.

It isn't the act of raising interest rates that's the mistake, it was the promise not to do so.

[Slava]

Originally Posted by bizaro86

No, like I said now that we have inflation they need to raise rates. But he never should have told people he wasn't going to for years.

I don't agree it's hindsight bias. He's an economist. He should have known massive increases in money supply via stimulus spending and quantitative easing worldwide had at least a possibility of causing significant inflation. Those policies increase inflation by design, so it shouldn't seem impossible that they worked. Once you know that, then promising to keep rates low is a foolish thing to do, because you're making a promise you may not be able to keep.

Ukraine/supply chain issues are a factor for sure, which wasn't foreseeable. But we had a giant increase in money supply, much of which was done in a way (direct stimulus to consumers) that also gives it a high velocity of money, since consumers are more likely to spend the cash than bondholders who get bought out in QE. I'm not saying he should 100% know the future, because I agree he isn't an oracle. But this was an eminently possible future so he shouldn't have promised he wouldn't take the obviously required action.

I disagree though, largely because we heard the same arguments after 2008-09. People were predicting $5000/oz gold because of hyper-inflation and there was "no way they could get that money out of the system". Well, it's easy to see now that we weren't dealing with hyper-inflation, they did get the money out and in fact what we saw was issues with deflation.

But more than this, its odd to blame the BoC. In a country where we routinely see that people have terrible financial literacy, the thought is they're actively paying attention to the comments Macklem made and making life decisions based on them? Gimme a break. People *might* look now, based on the newsworthy inflation issue, but even then I think that most Canadians go about their day and pay zero attention to what the Governor of the BoC has to say.

[blankall]

Originally Posted by Slava

Well the issue is that things change. I don't know what date that article has on it, but was there a war in Ukraine? Could they have known that inflation was going to spike at that time, or is this all just "easy to see" because we know the outcome?

So, things changed and the central banks (around the world, I'll note) had to change their strategy as a result. Even if you want to hammer them for saying things like this or calling inflation transitory, I'm not sure we would be in a good position if they basically said "well, we said that we'd keep rates low, so we're sticking at 0.25% and we'll just let people get wrecked by infaltion". How would that be at all a responsible tactic?

Things change. Exactly. Which is why the BoC shouldn't have been actively encouraging people to take on risky loans.

I'm far from an expert in economics and it seemed painfully obvious to me, as soon as the COVID lockdowns hit and the government responded by printing money, that inflation was almost certainly going to be an issue in the somewhat near future.

The BoC should have just kept quiet about their long term strategy, as it was painfully clear we were headed into a period of uncertainty. That alone could have factored into people's decision for fixed vs variable.

[powderjunkie]

Originally Posted by GGG

The government could have increased taxation broadly as a means to fight inflation and then the measures could have been targeted more and rather than banks and bond holders getting the money the government would to pay down debt. That is the way MMT is supposed to work.

Whether that’s better or worse for the average person and whether it works is up in the air but they did have another choice.

Income taxes seem like they'd be far too slow to respond, and since they are only an annual touch point they probably wouldn't impact consumer behaviour as much.

Increasing sales tax might work a bit better/faster, but again I'm not sure they'd have the same impact to consumer behaviour.

Originally Posted by calgarygeologist

I'm not entirely sure in the suffering bit but what is pretty clear is that the BoC has a pretty ####ty way of communicating things to us commoners. It doesn't sound very encouraging to hear the BoC saying things like high employment is causing inflation and that people should expect to lose their jobs and that wage increases are driving inflation.

Tiff has been going pulling pages out of the Prentice playbook and using the "look in the mirror" reasoning on us.

Fear mongering is a legitimate and powerful tool for BoC. A blank statement that says 100 bps might have the same impact as 50 bps + reminding people that their jobs may be at risk.

Originally Posted by blankall

My major gripe is that you had the BoC telling people that interest rates would be low for a while, in a situation where it was very obvious that things would be unstable:

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

They encouraged people to buy homes to simulate the economy during COVID. That's fine, but encouraging people, many first time buyers, to overly extend themselves or lock into variable rates seems almost criminal.

On the flip side, they can use optimism mongering when it suits them...like when they were trying to avoid a crash in the early uncertainty of a global pandemic. "The BoC told me it would be okay" is a pretty weak excuse/abdication of personal responsibility.

And rates did stay low for like 20 months. Debatable whether that = a long time, but IMO it's at least moderately long.

I'm also skeptical how many people were tuned in enough to be aware of those comments, but then somehow put their heads in the sand and ignored everything over the last 8 months until it was too late to go fixed.

[bizaro86]

Originally Posted by Slava

I disagree though, largely because we heard the same arguments after 2008-09. People were predicting $5000/oz gold because of hyper-inflation and there was "no way they could get that money out of the system". Well, it's easy to see now that we weren't dealing with hyper-inflation, they did get the money out and in fact what we saw was issues with deflation.

But more than this, its odd to blame the BoC. In a country where we routinely see that people have terrible financial literacy, the thought is they're actively paying attention to the comments Macklem made and making life decisions based on them? Gimme a break. People *might* look now, based on the newsworthy inflation issue, but even then I think that most Canadians go about their day and pay zero attention to what the Governor of the BoC has to say.

I think the big difference between 2008-2009 and the covid response was where the money went. 2009 was basically all quantitative easing, so most of the money went to investors who kept it as investments. Covid was direct transfers to people, and once consumers could get out and spend they did, so the velocity was higher.

But really, the crux of my argument isn't that he should be 100% accurate predicting the future. And 2009 is n=1 for "money supply increases not causing inflation". If we go further back there are plenty of examples of big increases in money supply immediately followed by big inflation. I'm not saying he should have been sure that would happen, but he absolutely would have been aware it was a possibility.

If I might have to work late I dont promise to pick up my kids from school. At the time he made that promise there was a good chance he would have to break it, so he shouldn't have made it.

I'm not saying the chance was 100% (because that is hindsight bias) but with all the inflationary actions being taken worldwide it wasn't a tail risk either.

I'm not a gold bug/prepper/inflationary doomsayer (at all, actually, I mostly don't do macro), but I think the person in charge of our monetary policy should be able to think probabilistically. More than one future is possible.

[blankall]

Originally Posted by Slava

I disagree though, largely because we heard the same arguments after 2008-09. People were predicting $5000/oz gold because of hyper-inflation and there was "no way they could get that money out of the system". Well, it's easy to see now that we weren't dealing with hyper-inflation, they did get the money out and in fact what we saw was issues with deflation.

But more than this, its odd to blame the BoC. In a country where we routinely see that people have terrible financial literacy, the thought is they're actively paying attention to the comments Macklem made and making life decisions based on them? Gimme a break. People *might* look now, based on the newsworthy inflation issue, but even then I think that most Canadians go about their day and pay zero attention to what the Governor of the BoC has to say.

It wasn't just some random guy. It was the head of the BoC. If the average person has no financial literacy, that just means they are more reliant on the people in charge.

There were likely many people who relied on those BoC statements when deciding whether to go fixed or variable. I also guarantee that many bank "advisors" brought those same statements to their customers attention when signing their mortgage papers.

The BoC, two years ago, should have said interest rates are historically low and there is a massive amount of uncertainty in the economy moving forward. That was the truth. They wanted to encourage people to take loans to simulate the economy and, totally unnecessarily btw, acted recklessly. Recklessness is not a quality I want in the head of the BoC. People should be sacked.

[powderjunkie]

Originally Posted by bizaro86

It's strong but it isn't objectively wrong either.

1) he said interest rates would remain low

2) then he raised them

He has direct control over interest rates. I'm not saying he shouldn't have raised them, that was the right choice to fight inflation. But he shouldn't have said they'd remain low for years, because that caused people to make unnecessary economic mistakes. Basically making the economic pain worse for no gain.

I really hate it when powerful people hurt those weaker/less educated than themselves, which is absolutely what happened here.

He either knew or should have known that inflation was a likely outcome from worldwide massively expanding money supply and low interest rates, and that if it came through he'd have to go back on that and raise rates. I guess its also possible he's an idiot, but I think it's more likely he knew that wasn't true and said it anyway to further short term motives at the time.

He didn't. He said they'd be low for a long time. He didn't define 'long time'.

He said they'd be low as long as inflation was below 2%, which they projected to be at least early 2023.

Every word on those statements is carefully considered. You're misrepresenting them (I'm probably bastardizing them a bit with my paraphrasing, too).

Originally Posted by bizaro86

I don't think someone whose broker quotes a bank of Canada promise to keep rates low for years and thus takes a variable rate is a greedy fool.

No such promise ever happened.

Originally Posted by bizaro86

No, like I said now that we have inflation they need to raise rates. But he never should have told people he wasn't going to for years.

He DID-ENT!

Originally Posted by blankall

Things change. Exactly. Which is why the BoC shouldn't have been actively encouraging people to take on risky loans.

I'm far from an expert in economics and it seemed painfully obvious to me, as soon as the COVID lockdowns hit and the government responded by printing money, that inflation was almost certainly going to be an issue in the somewhat near future.

The BoC should have just kept quiet about their long term strategy, as it was painfully clear we were headed into a period of uncertainty. That alone could have factored into people's decision for fixed vs variable.

Lol, when did they encourage risky loans? You really have to twist and misrepresent his statements to get anywhere close to that.

Keeping quiet or saying "we really don't know" would be a powerful statement in itself, likely leading to undesirable outcomes at the time.

[Slava]

Originally Posted by powderjunkie

He didn't. He said they'd be low for a long time. He didn't define 'long time'.

He said they'd be low as long as inflation was below 2%, which they projected to be at least early 2023.

Every word on those statements is carefully considered. You're misrepresenting them (I'm probably bastardizing them a bit with my paraphrasing, too).



No such promise ever happened.



He DID-ENT!



Lol, when did they encourage risky loans? You really have to twist and misrepresent his statements to get anywhere close to that.

Keeping quiet or saying "we really don't know" would be a powerful statement in itself, likely leading to undesirable outcomes at the time.

That bolded statement is paramount. Analysts and pundits parse through these statements for any hint of foretelling what the path is going to be. There's no blanket "we guarantee low rates, so buy now!" kind of wording at all.

[powderjunkie]

Originally Posted by bizaro86

I think the big difference between 2008-2009 and the covid response was where the money went. 2009 was basically all quantitative easing, so most of the money went to investors who kept it as investments. Covid was direct transfers to people, and once consumers could get out and spend they did, so the velocity was higher.

But really, the crux of my argument isn't that he should be 100% accurate predicting the future. And 2009 is n=1 for "money supply increases not causing inflation". If we go further back there are plenty of examples of big increases in money supply immediately followed by big inflation. I'm not saying he should have been sure that would happen, but he absolutely would have been aware it was a possibility.

If I might have to work late I dont promise to pick up my kids from school. At the time he made that promise there was a good chance he would have to break it, so he shouldn't have made it.

I'm not saying the chance was 100% (because that is hindsight bias) but with all the inflationary actions being taken worldwide it wasn't a tail risk either.

I'm not a gold bug/prepper/inflationary doomsayer (at all, actually, I mostly don't do macro), but I think the person in charge of our monetary policy should be able to think probabilistically. More than one future is possible.

If your kids are having a panic attack and can't sleep because they are worried about some terrible ominous event like their parents dying, you would probably assure them and make a promise that nothing bad was going to happen to you...even though that's pretty dishonest. You should really start breaking out statistics on car accidents and heart disease so that they can critically assess the likelihood that you will sustain a major injury or death anytime soon.

No, your aim is to get them to sleep and work on the bigger context of scary life events in the days/weeks/months to come.

A big part of the BoC's job is to be the calm/competent/trustworthy parent at the tiller. Global pandemic is not the time to acknowledge your fallibility. However, the warnings started to come and become more prominent throughout this whole calendar year. It's simply ridiculous to cling to headlines from 2020 at this point.

[calgarygeologist]

Originally Posted by Slava

That bolded statement is paramount. Analysts and pundits parse through these statements for any hint of foretelling what the path is going to be. There's no blanket "we guarantee low rates, so buy now!" kind of wording at all.

Here is how the Bank of Australia Governor is communicating with the public currently which might be an interesting comparison to Tiff Macklem.

https://www.abc.net.au/news/2022-11-...ages/101705340

Reserve Bank Governor Philip Lowe has apologised to Australians for giving them unclear guidance that led to hundreds of thousands taking out big mortgages in the expectation that interest rates would stay low until 2024.

Towards the end of 2020 and for nearly all of last year, Dr Lowe said interest rates would not likely rise until 2024.

At that time, almost 300,000 Australians took out loans six or more times their incomes, some with deposits as low as 10 per cent, based on that guidance.

He said with the benefit of hindsight he would have been more clear with his message that rates would not rise until 2024, but his message always came with caveats.

Nevertheless, he said the central bank should have done more to make those caveats clear to the public.

"I'm sorry that people listened to what we've said and acted on that, and now find themselves in a position they don't want to don't want to be in," Dr Lowe said.

"But at the time, we thought it was the right thing to do. And I think looking back would have chosen different language.

"People did not hear the caveats in what we said. We didn't get across the caveats clearly enough, and the community heard 2024. They didn't hear the conditionality.

"That's a failure on our part, we didn't communicate the caveats clearly enough, and we've certainly learned from that."

Dr Lowe said the Reserve Bank would now change its approach in how it communicates to the public.

[Yoho]

https://twitter.com/user/status/1602727603328221187

More of the same from Tiff.

[flamesfever]

When people find themselves in financial difficulty, they tend to look for something or someone to blame, and because with rising interest rates, more of the news is directed at comments made by the Governor of the BOC. It follows that people start looking back to see what he said that may have influenced their decision to buy a house at the time.

Until recently the real estate market in Ontario was absolutely nuts inflation wise, for the past number of years. And I know it is hindsight to say, but it doesn't take a genius to know it was exceptional and could not continue indefinitely. Something had to give, and it wasn't going to be pretty.

As far as interest rate considerations are concerned, I don't see most people focusing on comments by the Governor of the BOC to make their decision, as to whether to buy or not to buy at the time. I think it was just a matter that the interest rates were low for so long that a whole generation just assumed that it would or could never change.

I experienced the inflation of the 70s and 80s, and have been telling my son for the past 10 years to pay off his debt as soon as he can. He would always say, "Why would I do that, Dad? I am only paying 2% on my mortgage and I can take the same money and make 10% on the stock market" And he was right. However, experience has taught me that nothing stays the same forever.

just the way I see it

[Fuzz]

Maybe you just shouldn't ever be able to get a mortgage at such low rates. Make rock bottom something like 3%, and if the BoC rate would mean it could be much lower, any difference gets funneled directly to the principle. Same with vehicle loans. Getting people comfortable with unsustainable low interest rates is probably a bigger failure here, and increased housing prices beyond what they should have.

[Jason14h]

Even if someone took an elevated mortgage thinking rates would be low through 2023 what was their 2024-2026 plan

I assume it was that their house would appreciate 10% a year and it wouldn’t ever be a problem !