*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[bizaro86]

Originally Posted by opendoor

I don't know, there are a several times in recent memory where the bond markets have gotten it wrong, only to turn on a dime in response to central bank policies. In fact, in the last 4 rate tightening cycles, they've been pretty far off on 3 of them:

-in the mid-'90s 5-year treasury yields were flying upwards and got to almost 8% in late 1994. 2 months later, the Fed hit its terminal rate of 6% and stayed in that range for half a decade. The bond market was predicting a return to '80s interest rates but the Federal Reserve charted a different path.

-in June 2007 bond markets were still on an upwards trajectory at about 5% even after the Federal Reserve had held its rate steady for almost a year. Within 2 months the Fed was cutting rates, and the bond markets were following the Fed the whole way down. By mid-2008, the Fed's rate was 2%, but bond yields were still hanging around 3.5%, and we all know what happened soon after.

-in late 2018, bond markets were predicting a continued relatively fast increase in the effective federal funds rate, and 5-year yields were even well above the Federal Reserve rate (3% vs 2.2%). But then the Fed paused, and bond yields dropped like a rock down to 1.5% pre-COVID.


If the Federal Reserve was reacting to bond markets in any of those scenarios, rates would have been held up higher for longer, but they weren't. And the same will happen now. Bond markets can predict imminent cuts all they want, but they're likely only going to happen just prior to (or during) a recession. It's going to be inflation and job numbers that drive central bank decisions.

Some of the 5 year rate being consistently higher then the future five years overnight rate is a risk/illiquidity premium on the five year.

Obviously markets aren't perfect at predicting stuff, it's a best guess (and anyone who can be even slightly more right than the market will end up very, very rich)

[opendoor]

It's not the spread, it's the direction. Bond markets were predicting sustained higher rates in those examples a matter of months before the Federal Reserve started cutting.

I'm not saying anyone is can outpredict the bond market; I'm saying that the bond market doesn't dictate central bank moves. If the bond market is predicting higher rates and the central bank thinks they need to cut them to meet their mandate, they'll be cutting them regardless of what the market thinks just as they've done in the past.

[Slava]

Originally Posted by opendoor

It's not the spread, it's the direction. Bond markets were predicting sustained higher rates in those examples a matter of months before the Federal Reserve started cutting.

I'm not saying anyone is can outpredict the bond market; I'm saying that the bond market doesn't dictate central bank moves. If the bond market is predicting higher rates and the central bank thinks they need to cut them to meet their mandate, they'll be cutting them regardless of what the market thinks just as they've done in the past.

Well the central bank can do what they feel with the short term rates and have zero control over the longer term rates. It’s just not how it works.

[powderjunkie]

Originally Posted by slava

well it's definitely something of a chicken/egg discussion.

Who's having sex with the hen?

[opendoor]

Originally Posted by Slava

Well the central bank can do what they feel with the short term rates and have zero control over the longer term rates. It’s just not how it works.

I mean sure, bond/treasury yields (which drive fixed-rate loan rates) are dictated by the market because they're traded openly.

But that's not what you said. You said that the market dictates the trajectory of rates and the central bank just follows along, which is backwards. The central bank makes rate decisions based on fulfilling its mandate of maintaining price stability, and markets react to that.

[Doctorfever]

Some difficult times for people out there. These higher interest rates combined with soaring food prices are making it very difficult on the working class and middle class.


https://ca.finance.yahoo.com/news/th...153414578.html

[Adding to the dismay of some homeowners, many economists and investors are now expecting the central bank to largely keep its benchmark rate unchanged this year or hike one more time. It's a stark contrast to previous market expectations that the Bank of Canada could start cutting rates this fall.

The survey found 30 per cent of homeowners were having a tough or difficult time with their mortgage, but that number rose to 51 per cent for those with a variable rate.]

[nik-]

Everyone's sick of this silly three class system, we're here to get rid of this pesky middle class.

[PeteMoss]

Originally Posted by Doctorfever

Some difficult times for people out there. These higher interest rates combined with soaring food prices are making it very difficult on the working class and middle class.


https://ca.finance.yahoo.com/news/th...153414578.html

[Adding to the dismay of some homeowners, many economists and investors are now expecting the central bank to largely keep its benchmark rate unchanged this year or hike one more time. It's a stark contrast to previous market expectations that the Bank of Canada could start cutting rates this fall.

The survey found 30 per cent of homeowners were having a tough or difficult time with their mortgage, but that number rose to 51 per cent for those with a variable rate.]

Not to say this isn't tough for people, but the reason why they would drop interest rates this year is because we were in a recession or economic slow down. They aren't going to drop rates just for the hell of it.

Not that these economists or investors have any clue what is going to happen with interest rates beyond this month - but if the rates hold steady, its probably a good sign that inflation continues to deflate and the economy has stayed strong.

[Yoho]

https://twitter.com/user/status/1654205567919849474

[PeteMoss]

Top notch Yoho post there. Tweet put some comment in quotes that doesn't appear in the article at all.

The article basically says 'they plan to keep rates where they are but there is a risk that inflation could stick above 2% and Bank of Canada will raise interest rates if that does happen'.

[Yoho]

Put your critical thinking cap on.

https://twitter.com/user/status/1654218053729546242

[Slava]

Originally Posted by Yoho

Put your critical thinking cap on.

https://twitter.com/user/status/1654218053729546242

I put it on, and I'm not too sure about financial advice from someone named "tablesalt".

[undercoverbrother]

Originally Posted by Slava

I put it on, and I'm not too sure about financial advice from someone named "tablesalt".

The ironing in Yaho's post........."critical thinking cap'..................hahahaa

[Wormius]

Maybe Yoho can put his own critical thinking cap on and explain it himself, rather than continuing to spam the forum with rando tweets by guys named after condiments.

[chemgear]

Expectations were for inflation to continue to drop to 4.1% but increased instead to 4.4%.

Still wish they would have kept going for an additional hike to be sure inflation was down rather than this wish washy drawn out process. Only to be forced to hike again just a few months later.

https://globalnews.ca/news/9708152/b...une-rate-hike/

The annual inflation rate in April rose slightly to 4.4 per cent, compared with 4.3 per cent in March, Statistics Canada reported Tuesday.

“If the BoC doesn’t adopt the crush it, killer mentality, then it may never succeed in getting inflation down to (two per cent),” he wrote.

[Slava]

Originally Posted by chemgear

Expectations were for inflation to continue to drop to 4.1% but increased instead to 4.4%.

Still wish they would have kept going for an additional hike to be sure inflation was down rather than this wish washy drawn out process. Only to be forced to hike again just a few months later.

https://globalnews.ca/news/9708152/b...une-rate-hike/

The annual inflation rate in April rose slightly to 4.4 per cent, compared with 4.3 per cent in March, Statistics Canada reported Tuesday.

“If the BoC doesn’t adopt the crush it, killer mentality, then it may never succeed in getting inflation down to (two per cent),” he wrote.

Well it's tricky though, because the rate hikes have also increased shelter costs, which is a factor in that inflation print. I think that is ~0.5 of that figure.

[greyshep]

Originally Posted by Slava

Well it's tricky though, because the rate hikes have also increased shelter costs, which is a factor in that inflation print. I think that is ~0.5 of that figure.

Yes it seems they are a bit stuck. If they raise interest rates further, monthly payments on housing costs which are already contributing to the problem increases the inflation numbers even more.

Too many people on variable rate mortgages and the regular expiry of people on fixed term mortgages that have to get a new one at a much higher rate (due to interest rate hikes) its a vicious circle not solvable by just the interest rate hike hammer.

[chedder]

Recession incoming. If it hasn't already started.

[opendoor]

Originally Posted by Slava

Well it's tricky though, because the rate hikes have also increased shelter costs, which is a factor in that inflation print. I think that is ~0.5 of that figure.

Even higher, actually. Because mortgage interest inflation is almost 29% year over year, it adds about 0.9 percentage points to the headline inflation number on its own. And it adds even more to the core inflation number, because its basket weight is relatively bigger after excluding food and energy. So actual supply/demand driven inflation is a fair bit lower than the headline/core numbers.

And as for April's number, the biggest factors driving the month-over-month increase are either a side effect of rate increases (mortgage interest) or largely seasonal (gas prices, RVs/outboard motors, electricity prices rising due to April's carbon tax increase, etc.). It still looks like we'll be in the 3-3.5% range by summer, with all time high mortgage interest inflation being what keeps it above the target range.

[Slava]

Originally Posted by chedder

Recession incoming. If it hasn't already started.

It doesn’t appear to have started, at least by official measures. The GDP hasn’t had a negative quarter (thought it was flat in Q4 2022).