{"id":7467,"date":"2022-09-14T09:10:23","date_gmt":"2022-09-14T16:10:23","guid":{"rendered":"https:\/\/www.stevesaretsky.com\/?p=7467"},"modified":"2022-09-14T09:10:39","modified_gmt":"2022-09-14T16:10:39","slug":"hellbent-on-flatlining-the-economy","status":"publish","type":"post","link":"https:\/\/www.stevesaretsky.com\/2022\/09\/news\/hellbent-on-flatlining-the-economy\/","title":{"rendered":"Hellbent on Flatlining the Economy"},"content":{"rendered":"
As expected, the Bank of Canada raised interest rates another 75bps this past week. The overnight rate is now up a whopping 300bps year to date, the quickest tightening of monetary policy on a percentage basis since the 1980\u2019s. While there was no additional commentary from BoC Governor Tiff Macklem, the official press release notes, \u201cGiven the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further.\u201d<\/p>\n
For what it\u2019s worth, markets are still expecting the Bank of Canada to lift rates to 3.75% before hitting pause. So, assuming they are right we have another 50bps to go. However, even if they stopped here, the damage is already done, let\u2019s assess.<\/p>\n
The housing bull market is over, and the rest of the economy will follow. Remember when it used to take six months to get a new couch? Now furniture stores are laying off staff and cutting prices.<\/p>\n
Here\u2019s the CEO of Restoration Hardware this week, “People keep saying, are we going to be in a recession? We’re in a recession. Anybody who thinks we’re not in a recession is crazy. The housing market is in a recession & it’s just getting started. So it’s probably going to be a difficult 12 to 18 months in our industry.\u201d<\/p>\n
Central banks over committed to the transitory inflation narrative, and now they\u2019re over committing to the whatever it takes narrative. There will be an uncomfortable lag between now and the eventual pivot.<\/p>\n
The irony of all this is that while the central bank is hellbent on flatlining the economy, governments are working in reverse, desperately trying to keep their voter base afloat.<\/p>\n
The Trudeau Government is set to announce a doubling of GST tax rebates for six months and support Canadian households struggling to pay rent. The government will also provide a $500 one time top-up to a housing benefit that is provided to low earners who need help paying rent, and will provide initial details for a dental-care plan. This comes on top of new subsidies already announced from provincial governments, which, according to BMO\u2019s Robert Kavcic account to roughly $4.4B, or about 0.2% of GDP.<\/p>\n
If there\u2019s one way to ensure interest rates remain higher for longer it will be from the lack of restraint of governments, which, ironically, will harm the people they are most desperately trying to help.<\/p>\n","protected":false},"excerpt":{"rendered":"
As expected, the Bank of Canada raised interest rates another 75bps this past week. The overnight rate is now up a whopping 300bps year to date, the quickest tightening of monetary policy on a percentage basis since the 1980\u2019s. While there was no additional commentary from BoC Governor Tiff Macklem, the official press release notes, […]<\/p>\n","protected":false},"author":1,"featured_media":7468,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[70],"tags":[],"acf":[],"yoast_head":"\n
Hellbent on Flatlining the Economy - Steve Saretsky<\/title>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\n\t\n\t\n\n\n\n\n\n\t\n\t\n\t\n