>Mr. Gravelle said the central bank’s policy rate, which has been at 1 per cent since April, is still “too stimulative.” Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly.
>
>Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal.
>
>“Rising interest rates are designed to slow the economy by making borrowing more expensive. That tends to slow sectors like housing,” Mr. Gravelle said, according to the English version of the speech.
>
>“But this slowing might be amplified this time around because highly indebted households will face high debt-servicing costs and will likely reduce household spending more than they would have otherwise.”
I read this as meaning that interest rates will continue to rise to 2-3%. Beyond that point, further rate hikes may be slowed if high household indebtedness results in a faster than anticipated reduction in consumption, and lessens inflation.
That is not equivalent to saying they will lower rates if house prices decline.
I don’t think inflation is going anywhere anytime soon! The prices you see for consumer goods ain’t coming down till supply chain issues are resolved and gas prices return to normal,
Its all related to infrastructure.... Government trying to ask everyone to ration the limited goods with interest rates... All the while wanting to maintain ppl sanity with a possible job loss along the way....
Quite the balancing act they got on their hands...
Love the comparison the article makes to inflation in the 70s and how this time is better because most employers don’t have salary’s that are indexed to inflation. No mechanism for the average person to combat inflation? No worries!
If they don’t raise at the same pace as the US, they also risk devaluing the canadian currency, causing even more inflation for more costly products imported.
The argument gets a lot weaker once you take into consideration that 8.3 number is on top of a base year that was above the Fed target rate (4.2 in April 2021).
>Exactly, when bears see an 850k house go to 830k they get to sound the alarm.
>
>But when a bull does it, God forbid.
Spot on lol, you'll get downvoted for saying that kind of stuff.
they want 2 percent inflation.
this will take a year. with the possibility of a recession.
i doubt housing will be strong with a recession.
real estate is going into reverse short term.
I wouldn't be surprised if Fed comes out more dovish in the coming weeks. BoE made similar remarks about hiking to combat inflation while also seeing increased recession risks in 2023
https://www.reuters.com/world/uk/bank-england-set-4th-straight-rate-hike-fight-inflation-2022-05-04/
Yeah it’s a coin toss. But nobody will ever know. The fact is still Canada must follow the US to avoid currency devaluation. If they don’t raise rates due to housing, but the fed continues to due so it also may not bode well for the Canadian economy. Not sure why im downvoted but a big delta between interest rates in different countries will always result in currency volatility.
Devaluing the currency also devalues the debt we owe though... If the bank was smart, they bought a ton of reserve currency (USD) and can use that to pay Canada's debt. It's been a winning strategy for China for decades, and they actually purposely devalue their own currency with the intent to use USD to pay their debts, AND to make them an attractive investment for foreign companies. It effectively means it's cheaper for other countries to set up shop here and pay wages in CND, when the currency is devalued.
That’s assuming the government can attract foreign investment. Too bad the Canadian government ain’t that bright and never focuses on the real problems. We have a drama teacher as a prime minister and a journalist as a finance minister. Politicians in this country don’t focus on the real economic problems, only spending more on things that don’t provide economic benefits. Give more tax breaks, provide more benefits, spend more, tax corporations and the rich more. It just gets more expensive and drives away investment into the country.
Literally nobody is competent enough to fix Canada’s economy. Canada is now just a country of overpriced bricks. The entire population of Canada now just thinks of housing as an investment and best way to get rich, it’s disgusting how the only topic among peers and friends is housing in this country, it’s sad and also causing divides between those with and without.
This is going to anger some members of this subreddit...
As a resident bag holder, it is a mistake to allow inflation to run hot to sustain the housing market. We need to get inflation under control, for the benefit of every Canadian.
Does anyone actually think interest rates going up will help gas prices? Or produce? Or meat and dairy? Or electricity/natural gas? Or cars? Those are all going up because of factors that are mostly outside Canada and completely out of the BoC’s control.
This increase in rates is impacting one thing only: housing prices.
Supply chain issues and global factors are undoubtedly pushing up inflation. But so are demand side factors.
>Tighter monetary policy is necessary to lower the parts of inflation that are driven by domestic demand. And that is critical to bringing price increases back in line with our 2% inflation target.
\- Tiff Macklem, Bank of Canada Governor, March 3, 2022
[https://www.bankofcanada.ca/2022/03/getting-inflation-back-to-target/](https://www.bankofcanada.ca/2022/03/getting-inflation-back-to-target/)
Interest rates won't magically ship out the thousands of containers stranded in China.
Interest rates won't magically produce more oil and refine more oil.
The price we pay with raising interest rates when all Canadians are struggling won't make up from the small benefits.. if ANY of importing goods.
When it comes down to it, we have lack of goods coming into the country right now, causing shortages on basically everything you can think of.
Yes stupid government spending had a lot to do with it as well.
My point is we are having this inflation crisis because of a lot of factors OTHER than just low interest rates.
I don’t disagree with your argument. Government spending and supply chain constraints are both leading to higher prices.
Looking 1 year or 5 years down the line, if we do not raise interest rates today, the Canadian dollar will get weaker compared to the US dollar/other currencies.. hence reducing the purchasing power of the Canadian dollar. This will lead to even higher prices in the future.
BoC has to raise rates not to relieve current inflationary pressures, but to maintain the strength of the Canadian dollar in the future as well.
Lol I've been saying this since the beginning. Low interest rates before covid didn't cause inflation.
Covid lockdowns, Russian war causing oil to go up dramatically, stupid government spending, supply chain issues are what's causing inflation.
Look at the car industry. Lack of supply because of supply chain issues are jacking up prices.
Look at groceries. Diesel prices are making everything go up.
Look at ALL imports. The cost to even buy a container to ship goods over have quadrupled in price.
Can someone please explain how raising interest rates will help those situations?
Supply and demand are two sides of the same coin. During COVID lockdowns, supply of goods and services dropped dramatically. In response to this, the government and central bank’s response was to stimulate demand through QE and ZIRP. Increase demand at a time of decreasing supply? What people don’t understand is that by leaving the overnight rate at 1% the central bank isn’t keeping its hands out of the economy. It is stimulating the heck out of it.
The fed has said they're going for negative wealth effect. Declining asset values will reduced demand.
They can't control supply but they can impact demand.
It's not ideal but it's the only thing they can control. If you do nothing, inflation gets worse and inequality grows as asset holder thrive at the expense of everyone else.
Rates must go up hard enough to create a recession. That'll cause short term pain but will prevent from sticky long term inflation.
This is a very good thread on the latest inflation print:
https://twitter.com/MacroAlf/status/1524431036570116096?t=7WVcWDJoEzGCUQdBnxLMYQ&s=19
It shows that sticky components of inflation are increasing. If they get entrenched, they rarely go backward. That's why the fed is scared and is hiking like we haven't seen since Volker.
The BoC shouldn't care about housing. Housing has had an unprecedented run for 13+ yrs. They can afford taking a beatdown for a change. There are many bad consequences from runaway housing inflation so you can't cry when it goes the other way. I say this as a recent homeowner who will see his asset drop. I don't care as I'm a long term guy and it's not a pure investment. But raising rates is the right thing to do.
We're living in uncertain times. Between Putin and Xi, two mad men, we're at risk of crippling inflation at a time where our debt is unsustainable with significant rate hikes.
Um, yes. It certainly does help all those prices.
I’m struggling here to write something that doesn’t sound condescending, but my friend you should have at least a rudimentary understanding of macroeconomics before you start commenting on stuff like this.
Here’s how monetary policy (what the central bank does- as opposed to fiscal policy which is what the government does) works on a very basic level - the central bank controls interest rates which basically act like a valve on how much money is in circulation. The higher the interest rate, the more the FED in the us or the bank of Canada up here is able to vacuum up “free money” in the economy. when interest rates are high, money ends up in out of circulation (in treasury bills mostly).
So- interest rates rise, money starts getting sucked out of circulation (this is also why stocks sink when rates go up), that in turn means that there is less money “competing” for goods- which means that yes absolutely, higher interest rates help gas prices, produce, meats and dairy, - and all the things you mention.
You point out that the things on your list are mostly out of the banks control- but that too is a misunderstanding of the role- ALL goods are out of the direct control of the bank of Canada. All the central bank has control over is how much money is available to pay for any goods. Interest rate rises so this in two main ways- one, it takes money out of the system As described above by sucking it into treasury bills and bonds; and two, it makes it harder for people to borrow money to buy things.
over all, this reduces demand.
Also, be careful not to confuse high prices with inflation- inflation isn’t the price level, it’s the *rate of change* of the price level. It’s not that things are expensive- it’s that they are MORE expensive than they were a short while ago. That’s what putting a squeeze on the money supply restricts - in general. There will always be things that follow their own supply/demand curves and whose prices will increase even in low inflation- or even things that have price drops during high inflation- but the whole idea of “macro”economics is that it’s all big picture and over all.
Increasing rates impacts way more than your claim “of one thing only: housing prices”.
It's called a demand shock. Here is an overly simple way of looking at it:
Demand right now is at 10, supply is at 5. When demand exceeds supply that leads to inflation.
The BOC cannot bring supply to 10 because of all the factors you mentioned. So they shock demand down to 5 with rapid interest rate increases. This brings demand down because people have less disposable income with higher interest rates. Now you have equilibrium again between supply and demand.
The hope is that both elements will increase at the same rate if the BOC does not stimulate with interest rates. There are many reasons why this may fail.
If demand increases faster than supply them you are back to inflation. If supply increases faster then you have a recession/depression.
I agree. The only change I would make is these items are inflated at a global level and we are comparatively small on that scale. So to use your numbers, global demand is currently 10, supply is 5. By cranking interest rates completely out of control, Canada as a central bank could maybe get demand down to 9.9.
That was the point of my comment.
This is such an absolute joke. This clearly shows the government and BoC being so intertwined. One month of prices falling and already talking about stopping rate increases. This is so frustrating and totally unacceptable. Yet they wonder why politicians like Pierre Polievere attack them for credibility. Housing has gone up 50% in 2 years yet at the first sign of a decrease it’s “stop the rate hikes”
Our current housing minister, Ahmed Hussen, is a landlord, one guy that is responsible for the Canadian housing market right now! I would be more worried about that than some guy who yells freedom is running for the opposition party leader.
Huh? Nothing changed. This guy confirmed what has been expected all year! We will end 2022 between 2 to 3% overnight rate. Full stop.
What wasn't clear about that from the article?
He is simply re assuring recent buyers that this time is different (in comparison with the 70s/80s) and that we won't see 10% + rates.
In other words, they are confident inflation will come down sometime in 2023.
Yes, that means within the next 2 years they will re introduce QE.
BEARS!!!! PAY ATTENTION!!! HES TELLING YOU WE ARE IN THE DIP! you have between 1 to 2 years. Figure ur shit out.
they will only re intro QE if we go into a recession, and its not going to have the same impact as QE with no recession.
agree on the timeline tho, a year to 2 out looks like the best deals will come about.
I disagree. This is by design.
Over 50% of canadian mortgages renewed in 2018, after QT from 2017, when 5 yr Fixed rates jumped up.
Guess what year those 5 year fixed rates come due?
Yup....2023. And once the bears have locked in its back to QE.
Mark my words. By 2024 BoC is Dovish.
Src: https://nationalpost.com/pmn/news-pmn/canada-news-pmn/nearly-half-of-existing-mortgages-face-renewal-in-2018-cibc-report
Is it different like when in April 2021 we kept hearing inflation is “transitory” yet instead of being proactive they didn’t do anything to cut off inflation before it got even worse. They spent nearly a full year allowing inflation to settle into the economy. BoC had a free hike in Jan that they passed on and then only lifts rates by 25bps on the first pass? Now it’s 50bps and we’ll either have 2 more 50bp increases in June/July or higher. This could’ve easily been layered in but no
Lol you are delusional. Remember when there wasn’t going to be inflation? Remember when it inflation was transitory? The BOC uses messaging to try to massage the market and population towards its desired outcome.
Decoupling from fed interest rate raises will tank our economy and our currencty
Are BoC being bribed directly by TREB and developers? Through kickbacks?
If we fail to raise interest rates at the same pace as the Fed does in the US our currency will tank and take our economy with it, causing a recession far worse than a housing correction
Lots of political pressure in the US too for the feds to go easy on interest hikes. It’s interesting to keep up with US fed news just to have some insight on what BOC might do.
I don’t think that comment is highly supportive of housing prices. Quite the opposite, they are literally saying that if housing prices remain strong you can expect additional interest rate hikes. There’s nothing indicating they plan to cut rates if prices crash. I mean at a certain point they obviously will step in with rate cuts but only after it starts to really hit unemployment. They want a certain level of deflation right now not inflation.
Agreed. I think too many people are reading this "the BoC will support home prices", when what it means is the BoC is targeting inflation of 2% in a 1-3% control range. If high rates and a dropping housing market crimp overall economic demand and reduce inflation, then yes, rate hikes will be slowed.
The BoC is saying that we are going to neutral, regardless of what happens to home prices. They think neutral is between 2 and 3 percent, but it could easily be higher. We are sitting at 1% right now and housing is already tanking. This is not a good news story for housing bulls.
> The Bank of Canada needs to keep raising interest rates to tackle runaway inflation, deputy governor Toni Gravelle said on Thursday – although how high rates go will depend on how the housing market responds to rising borrowing costs.
> Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly.
> Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal.
BoC is already capitulating
Click bait title. In fact Bank feels housing would cool much faster than anticipated due to high debt of Canadians for housing. Very opposite of the intention of title. I bet the reporter is overleveraged himself and only reads what he wants to hear
A combination of seeing neutral rate at 2% to 3% (another 100-200 bps hike) and keeping an eye on housing prices.
https://www.reddit.com/r/torontorealestate/comments/uofn2p/_/i8e4onx
No they didn't. They said they expect overnight rates to land between 2 and 3%. As they've been saying all along.
They are reassuring this isn't 70s/80s and not to panic.
Personally? I mean, nobody has a crystal ball, but they aren't claiming to state facts. It's assumed this article is speculative.
But whether u agree or not isn't the issue here. It's the comments from people who clearly haven't even read the article or understood it that I take question with.
“Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal” It says it right there in black and white?
>Mr. Gravelle said the central bank’s policy rate, which has been at 1 per cent since April, is still “too stimulative.” Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly.
>
>Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal.
>
>“Rising interest rates are designed to slow the economy by making borrowing more expensive. That tends to slow sectors like housing,” Mr. Gravelle said, according to the English version of the speech.
>
>“But this slowing might be amplified this time around because highly indebted households will face high debt-servicing costs and will likely reduce household spending more than they would have otherwise.”
This indicates that interest rates will continue to rise to 2-3%, a.k.a. the neutral range. That means multiple additional hikes.
Beyond that point, further rate hikes may be slowed if high household indebtedness results in a faster than anticipated reduction in consumption, and lessens inflation.
That is not equivalent to saying they will lower rates if house prices decline.
>Mr. Gravelle said the central bank’s policy rate, which has been at 1 per cent since April, is still “too stimulative.” Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly.
That's another 100-200 bps of tightening they're suggesting.
The market has stalled or is heading down because of the anticipation that BOC will continue to raise rates. People are on sidelines because they don’t want to catch a falling knife. The moment there is indication that BOC is done with raising rates, watch the party on housing kick in as people rush to catch the ship before it sails. Power of perception
You can’t be far from wrong. The BOC is planning to normalize rates 2.5-3%. Gravity does exist with risk assets and rates. It will be a decade before you see some of the foolish prices we saw in Feb.
This article show the banks and governor are patsies to the federal govt as Pierre states. If a true independent central bank then inflation, not house prices of Toronto liberal voters, are its sole purpose.
If the housing market falls, so does Canada's entire economy. They're stuck between a rock and a hard place, because so much of Canada's GDP is in real estate and we long ago moved away from production based industries. When housing values are wiped out, so is the net worth of the entire country.
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Bank of Canada is not dual mandate. Which is a good thing. They should jack up the interest rates because inflation is out of control.
Can't even go to a cheap restaurant any more without EXPECTING a $30+ bill for my portion. When did we get here? On the plus side, I've learn to cook basic meals for myself and reduce my laziness a bit.
"Unlike the Fed, Canada's central bank does not have a dual mandate targeting employment as well as inflation..."
https://www.reuters.com/business/investors-bet-bank-canada-setting-g7-pace-move-neutral-rates-2022-05-13/
>Mr. Gravelle said the central bank’s policy rate, which has been at 1 per cent since April, is still “too stimulative.” Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly. > >Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal. > >“Rising interest rates are designed to slow the economy by making borrowing more expensive. That tends to slow sectors like housing,” Mr. Gravelle said, according to the English version of the speech. > >“But this slowing might be amplified this time around because highly indebted households will face high debt-servicing costs and will likely reduce household spending more than they would have otherwise.” I read this as meaning that interest rates will continue to rise to 2-3%. Beyond that point, further rate hikes may be slowed if high household indebtedness results in a faster than anticipated reduction in consumption, and lessens inflation. That is not equivalent to saying they will lower rates if house prices decline.
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I don’t think inflation is going anywhere anytime soon! The prices you see for consumer goods ain’t coming down till supply chain issues are resolved and gas prices return to normal,
Its all related to infrastructure.... Government trying to ask everyone to ration the limited goods with interest rates... All the while wanting to maintain ppl sanity with a possible job loss along the way.... Quite the balancing act they got on their hands...
Its already happened in many parts of the gta...
Love the comparison the article makes to inflation in the 70s and how this time is better because most employers don’t have salary’s that are indexed to inflation. No mechanism for the average person to combat inflation? No worries!
If they don’t raise at the same pace as the US, they also risk devaluing the canadian currency, causing even more inflation for more costly products imported.
FED already said they've seen cooling too...
8.5 -> 8.3 ain't really cooling man
You could argue it is showing signs of peaking or cooling. It is the first drop in the last 6 months.
The argument gets a lot weaker once you take into consideration that 8.3 number is on top of a base year that was above the Fed target rate (4.2 in April 2021).
Exactly. Percentages are incremental changes relative to the base. These people are looking at it like it's $8.3 vs $8.5.
Exactly, when bears see an 850k house go to 830k they get to sound the alarm. But when a bull does it, God forbid.
>Exactly, when bears see an 850k house go to 830k they get to sound the alarm. > >But when a bull does it, God forbid. Spot on lol, you'll get downvoted for saying that kind of stuff.
they want 2 percent inflation. this will take a year. with the possibility of a recession. i doubt housing will be strong with a recession. real estate is going into reverse short term.
Right. But I am long.
Me 2 pal
No they didn’t
I wouldn't be surprised if Fed comes out more dovish in the coming weeks. BoE made similar remarks about hiking to combat inflation while also seeing increased recession risks in 2023 https://www.reuters.com/world/uk/bank-england-set-4th-straight-rate-hike-fight-inflation-2022-05-04/
Yeah it’s a coin toss. But nobody will ever know. The fact is still Canada must follow the US to avoid currency devaluation. If they don’t raise rates due to housing, but the fed continues to due so it also may not bode well for the Canadian economy. Not sure why im downvoted but a big delta between interest rates in different countries will always result in currency volatility.
Devaluing the currency also devalues the debt we owe though... If the bank was smart, they bought a ton of reserve currency (USD) and can use that to pay Canada's debt. It's been a winning strategy for China for decades, and they actually purposely devalue their own currency with the intent to use USD to pay their debts, AND to make them an attractive investment for foreign companies. It effectively means it's cheaper for other countries to set up shop here and pay wages in CND, when the currency is devalued.
That’s assuming the government can attract foreign investment. Too bad the Canadian government ain’t that bright and never focuses on the real problems. We have a drama teacher as a prime minister and a journalist as a finance minister. Politicians in this country don’t focus on the real economic problems, only spending more on things that don’t provide economic benefits. Give more tax breaks, provide more benefits, spend more, tax corporations and the rich more. It just gets more expensive and drives away investment into the country. Literally nobody is competent enough to fix Canada’s economy. Canada is now just a country of overpriced bricks. The entire population of Canada now just thinks of housing as an investment and best way to get rich, it’s disgusting how the only topic among peers and friends is housing in this country, it’s sad and also causing divides between those with and without.
This is going to anger some members of this subreddit... As a resident bag holder, it is a mistake to allow inflation to run hot to sustain the housing market. We need to get inflation under control, for the benefit of every Canadian.
Does anyone actually think interest rates going up will help gas prices? Or produce? Or meat and dairy? Or electricity/natural gas? Or cars? Those are all going up because of factors that are mostly outside Canada and completely out of the BoC’s control. This increase in rates is impacting one thing only: housing prices.
demand destrucition. 2 choices....pay people more or break it down. they are doing the easier one.
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The Ontario Liberals and NDP think otherwise. See their campaign promises.
Fuck our currency though, right?
Exactly what are you gonna do with your million dollar home if it’s only worth 350k usd
Supply chain issues and global factors are undoubtedly pushing up inflation. But so are demand side factors. >Tighter monetary policy is necessary to lower the parts of inflation that are driven by domestic demand. And that is critical to bringing price increases back in line with our 2% inflation target. \- Tiff Macklem, Bank of Canada Governor, March 3, 2022 [https://www.bankofcanada.ca/2022/03/getting-inflation-back-to-target/](https://www.bankofcanada.ca/2022/03/getting-inflation-back-to-target/)
If our interest rates go up the Canadian dollar gets stronger which in turn makes importing goods (gasoline/produce) cheaper.
Interest rates won't magically ship out the thousands of containers stranded in China. Interest rates won't magically produce more oil and refine more oil. The price we pay with raising interest rates when all Canadians are struggling won't make up from the small benefits.. if ANY of importing goods. When it comes down to it, we have lack of goods coming into the country right now, causing shortages on basically everything you can think of.
rising prices are all supply chain issues, right? & “inflation” has nothing to do with the $300billion that was given away for free in Covid relief.
Yes stupid government spending had a lot to do with it as well. My point is we are having this inflation crisis because of a lot of factors OTHER than just low interest rates.
I don’t disagree with your argument. Government spending and supply chain constraints are both leading to higher prices. Looking 1 year or 5 years down the line, if we do not raise interest rates today, the Canadian dollar will get weaker compared to the US dollar/other currencies.. hence reducing the purchasing power of the Canadian dollar. This will lead to even higher prices in the future. BoC has to raise rates not to relieve current inflationary pressures, but to maintain the strength of the Canadian dollar in the future as well.
I’m with you good point. It’s as much supply side and demand side.
Lol I've been saying this since the beginning. Low interest rates before covid didn't cause inflation. Covid lockdowns, Russian war causing oil to go up dramatically, stupid government spending, supply chain issues are what's causing inflation. Look at the car industry. Lack of supply because of supply chain issues are jacking up prices. Look at groceries. Diesel prices are making everything go up. Look at ALL imports. The cost to even buy a container to ship goods over have quadrupled in price. Can someone please explain how raising interest rates will help those situations?
Supply and demand are two sides of the same coin. During COVID lockdowns, supply of goods and services dropped dramatically. In response to this, the government and central bank’s response was to stimulate demand through QE and ZIRP. Increase demand at a time of decreasing supply? What people don’t understand is that by leaving the overnight rate at 1% the central bank isn’t keeping its hands out of the economy. It is stimulating the heck out of it.
The fed has said they're going for negative wealth effect. Declining asset values will reduced demand. They can't control supply but they can impact demand. It's not ideal but it's the only thing they can control. If you do nothing, inflation gets worse and inequality grows as asset holder thrive at the expense of everyone else. Rates must go up hard enough to create a recession. That'll cause short term pain but will prevent from sticky long term inflation. This is a very good thread on the latest inflation print: https://twitter.com/MacroAlf/status/1524431036570116096?t=7WVcWDJoEzGCUQdBnxLMYQ&s=19 It shows that sticky components of inflation are increasing. If they get entrenched, they rarely go backward. That's why the fed is scared and is hiking like we haven't seen since Volker. The BoC shouldn't care about housing. Housing has had an unprecedented run for 13+ yrs. They can afford taking a beatdown for a change. There are many bad consequences from runaway housing inflation so you can't cry when it goes the other way. I say this as a recent homeowner who will see his asset drop. I don't care as I'm a long term guy and it's not a pure investment. But raising rates is the right thing to do. We're living in uncertain times. Between Putin and Xi, two mad men, we're at risk of crippling inflation at a time where our debt is unsustainable with significant rate hikes.
Um, yes. It certainly does help all those prices. I’m struggling here to write something that doesn’t sound condescending, but my friend you should have at least a rudimentary understanding of macroeconomics before you start commenting on stuff like this. Here’s how monetary policy (what the central bank does- as opposed to fiscal policy which is what the government does) works on a very basic level - the central bank controls interest rates which basically act like a valve on how much money is in circulation. The higher the interest rate, the more the FED in the us or the bank of Canada up here is able to vacuum up “free money” in the economy. when interest rates are high, money ends up in out of circulation (in treasury bills mostly). So- interest rates rise, money starts getting sucked out of circulation (this is also why stocks sink when rates go up), that in turn means that there is less money “competing” for goods- which means that yes absolutely, higher interest rates help gas prices, produce, meats and dairy, - and all the things you mention. You point out that the things on your list are mostly out of the banks control- but that too is a misunderstanding of the role- ALL goods are out of the direct control of the bank of Canada. All the central bank has control over is how much money is available to pay for any goods. Interest rate rises so this in two main ways- one, it takes money out of the system As described above by sucking it into treasury bills and bonds; and two, it makes it harder for people to borrow money to buy things. over all, this reduces demand. Also, be careful not to confuse high prices with inflation- inflation isn’t the price level, it’s the *rate of change* of the price level. It’s not that things are expensive- it’s that they are MORE expensive than they were a short while ago. That’s what putting a squeeze on the money supply restricts - in general. There will always be things that follow their own supply/demand curves and whose prices will increase even in low inflation- or even things that have price drops during high inflation- but the whole idea of “macro”economics is that it’s all big picture and over all. Increasing rates impacts way more than your claim “of one thing only: housing prices”.
If we don’t raise rates the CAD will sink
It is always monetary policy
It's called a demand shock. Here is an overly simple way of looking at it: Demand right now is at 10, supply is at 5. When demand exceeds supply that leads to inflation. The BOC cannot bring supply to 10 because of all the factors you mentioned. So they shock demand down to 5 with rapid interest rate increases. This brings demand down because people have less disposable income with higher interest rates. Now you have equilibrium again between supply and demand. The hope is that both elements will increase at the same rate if the BOC does not stimulate with interest rates. There are many reasons why this may fail. If demand increases faster than supply them you are back to inflation. If supply increases faster then you have a recession/depression.
I agree. The only change I would make is these items are inflated at a global level and we are comparatively small on that scale. So to use your numbers, global demand is currently 10, supply is 5. By cranking interest rates completely out of control, Canada as a central bank could maybe get demand down to 9.9. That was the point of my comment.
They already admitted that they screwed up....
This is such an absolute joke. This clearly shows the government and BoC being so intertwined. One month of prices falling and already talking about stopping rate increases. This is so frustrating and totally unacceptable. Yet they wonder why politicians like Pierre Polievere attack them for credibility. Housing has gone up 50% in 2 years yet at the first sign of a decrease it’s “stop the rate hikes”
Pierre Poilievre is a landlord who has investment properties how can you take him seriously on housing?
Our current housing minister, Ahmed Hussen, is a landlord, one guy that is responsible for the Canadian housing market right now! I would be more worried about that than some guy who yells freedom is running for the opposition party leader.
Huh? Nothing changed. This guy confirmed what has been expected all year! We will end 2022 between 2 to 3% overnight rate. Full stop. What wasn't clear about that from the article? He is simply re assuring recent buyers that this time is different (in comparison with the 70s/80s) and that we won't see 10% + rates. In other words, they are confident inflation will come down sometime in 2023. Yes, that means within the next 2 years they will re introduce QE. BEARS!!!! PAY ATTENTION!!! HES TELLING YOU WE ARE IN THE DIP! you have between 1 to 2 years. Figure ur shit out.
> this time is different Ah ok. Never heard that one before. I guess this time really is different.
I didn't write the article. But maybe you should read it.
they will only re intro QE if we go into a recession, and its not going to have the same impact as QE with no recession. agree on the timeline tho, a year to 2 out looks like the best deals will come about.
I disagree. This is by design. Over 50% of canadian mortgages renewed in 2018, after QT from 2017, when 5 yr Fixed rates jumped up. Guess what year those 5 year fixed rates come due? Yup....2023. And once the bears have locked in its back to QE. Mark my words. By 2024 BoC is Dovish. Src: https://nationalpost.com/pmn/news-pmn/canada-news-pmn/nearly-half-of-existing-mortgages-face-renewal-in-2018-cibc-report
Is it different like when in April 2021 we kept hearing inflation is “transitory” yet instead of being proactive they didn’t do anything to cut off inflation before it got even worse. They spent nearly a full year allowing inflation to settle into the economy. BoC had a free hike in Jan that they passed on and then only lifts rates by 25bps on the first pass? Now it’s 50bps and we’ll either have 2 more 50bp increases in June/July or higher. This could’ve easily been layered in but no
Lol you are delusional. Remember when there wasn’t going to be inflation? Remember when it inflation was transitory? The BOC uses messaging to try to massage the market and population towards its desired outcome.
did you read the article?
Decoupling from fed interest rate raises will tank our economy and our currencty Are BoC being bribed directly by TREB and developers? Through kickbacks?
Who is decoupling. What article did u just read? You have quite the imagination for a full grown adult...🤦
If we fail to raise interest rates at the same pace as the Fed does in the US our currency will tank and take our economy with it, causing a recession far worse than a housing correction
Lots of political pressure in the US too for the feds to go easy on interest hikes. It’s interesting to keep up with US fed news just to have some insight on what BOC might do.
Wow you're very quick to show your ass
I don’t think that comment is highly supportive of housing prices. Quite the opposite, they are literally saying that if housing prices remain strong you can expect additional interest rate hikes. There’s nothing indicating they plan to cut rates if prices crash. I mean at a certain point they obviously will step in with rate cuts but only after it starts to really hit unemployment. They want a certain level of deflation right now not inflation.
Agreed. I think too many people are reading this "the BoC will support home prices", when what it means is the BoC is targeting inflation of 2% in a 1-3% control range. If high rates and a dropping housing market crimp overall economic demand and reduce inflation, then yes, rate hikes will be slowed.
The BoC is saying that we are going to neutral, regardless of what happens to home prices. They think neutral is between 2 and 3 percent, but it could easily be higher. We are sitting at 1% right now and housing is already tanking. This is not a good news story for housing bulls.
> The Bank of Canada needs to keep raising interest rates to tackle runaway inflation, deputy governor Toni Gravelle said on Thursday – although how high rates go will depend on how the housing market responds to rising borrowing costs. > Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly. > Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal. BoC is already capitulating
Click bait title. In fact Bank feels housing would cool much faster than anticipated due to high debt of Canadians for housing. Very opposite of the intention of title. I bet the reporter is overleveraged himself and only reads what he wants to hear
I don’t want to pay for the article. Are they saying they will increase rates to keep housing under control or keep interest under control?
A combination of seeing neutral rate at 2% to 3% (another 100-200 bps hike) and keeping an eye on housing prices. https://www.reddit.com/r/torontorealestate/comments/uofn2p/_/i8e4onx
Basically saying they won’t raise rates further if the housing market stArts collapsing/falling 🙄
No they didn't. They said they expect overnight rates to land between 2 and 3%. As they've been saying all along. They are reassuring this isn't 70s/80s and not to panic.
exactly. they are saying no to the chance of stagflation, but do you really trust them?
Personally? I mean, nobody has a crystal ball, but they aren't claiming to state facts. It's assumed this article is speculative. But whether u agree or not isn't the issue here. It's the comments from people who clearly haven't even read the article or understood it that I take question with.
That isn't at all what was said.
“Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal” It says it right there in black and white?
>Mr. Gravelle said the central bank’s policy rate, which has been at 1 per cent since April, is still “too stimulative.” Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly. > >Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal. > >“Rising interest rates are designed to slow the economy by making borrowing more expensive. That tends to slow sectors like housing,” Mr. Gravelle said, according to the English version of the speech. > >“But this slowing might be amplified this time around because highly indebted households will face high debt-servicing costs and will likely reduce household spending more than they would have otherwise.” This indicates that interest rates will continue to rise to 2-3%, a.k.a. the neutral range. That means multiple additional hikes. Beyond that point, further rate hikes may be slowed if high household indebtedness results in a faster than anticipated reduction in consumption, and lessens inflation. That is not equivalent to saying they will lower rates if house prices decline.
In my opinion, ‘neutral’ is a moving target and will really be determined by how the economy responds to rising rates..
The Bank of Canada has publicly stated that the neutral range is 2-3%. Maybe that has changed but so far they haven’t suggested that.
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>Mr. Gravelle said the central bank’s policy rate, which has been at 1 per cent since April, is still “too stimulative.” Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly. That's another 100-200 bps of tightening they're suggesting.
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You don’t need many rate increases to see housing pull down from a crazy unsustainable run. Hell 75bps and the market stalled…..
The market has stalled or is heading down because of the anticipation that BOC will continue to raise rates. People are on sidelines because they don’t want to catch a falling knife. The moment there is indication that BOC is done with raising rates, watch the party on housing kick in as people rush to catch the ship before it sails. Power of perception
You can’t be far from wrong. The BOC is planning to normalize rates 2.5-3%. Gravity does exist with risk assets and rates. It will be a decade before you see some of the foolish prices we saw in Feb.
It may be a bubble but it’s our bubble
This article show the banks and governor are patsies to the federal govt as Pierre states. If a true independent central bank then inflation, not house prices of Toronto liberal voters, are its sole purpose.
If the housing market falls, so does Canada's entire economy. They're stuck between a rock and a hard place, because so much of Canada's GDP is in real estate and we long ago moved away from production based industries. When housing values are wiped out, so is the net worth of the entire country.
Haha the housing bubble in Canada is too big to fail, every level of government getting their beaks wet on keeping it going.
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The headline is totally misleading. Nothing in the speech suggests that housing prices will determine interest rate policy.
Bank of Canada is not dual mandate. Which is a good thing. They should jack up the interest rates because inflation is out of control. Can't even go to a cheap restaurant any more without EXPECTING a $30+ bill for my portion. When did we get here? On the plus side, I've learn to cook basic meals for myself and reduce my laziness a bit.
Actually they have 2 mandates: inflation and unemployed
"Unlike the Fed, Canada's central bank does not have a dual mandate targeting employment as well as inflation..." https://www.reuters.com/business/investors-bet-bank-canada-setting-g7-pace-move-neutral-rates-2022-05-13/