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Why it will happen

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With the rate of inflation now under 3% there’s more buzz about lower rates. At least one major economist is giving 50/50 odds the first cut lands April 10th.

Yes, that’s the date this questionable blog first suggested w-a-y back in 2023. Of course at that point it was conjecture based on current data. Now we have lots more of it, and the conclusion is solid: rates will fall. Maybe in April. Maybe not. But like daffodils and hormones, cuts are a’coming.

It’s quite possible the Bank of Canada will chop before the Fed does.


Our inflation progress is better. The big banks are (this week) setting aside billions for bad loans. Unlike in the States, economic growth here is anemic. The jobless rate is ticking steadily higher. Consumer confidence is weak. Fully half of people surveyed in a new Leger poll (that favours the Cons) say they live paycheque-to-paycheque. Clearly higher rates (after ten increases by the CB) have done well in kicking the poop out of the GDP and family finances. Canada does not have a Magnificent Seven or a Nvidia to backbone equity markets or the larger economy. The cost of debt is exacting an unaffordable toll on our nation, and Tiff understands that.

Look at national finances. Yuck. The feds (with our taxes) are spending $47 billion a year to service the federal debt. That’s $16 billion more than the child benefit costs. It’s about equal to what Ottawa sets aside for healthcare. It’s $20 billion more than we spend on our poor military. Thus is utterly unsustainable, no matter what Chrystia tells you.

It’s evidence why the cost of money in Canada could reduce faster than in the States, where citizens are now enmeshed in a lose-lose presidential contest – yet where the jobless rate is weensy, the economy is growing like a weed, corporate profits are accelerating, stocks markets are hitting records and inflation is stuck over 3%. Plus, they control, the world’s reserve currency.

Soon the cost-of-living in Canada will be well within the Bank of Canada’s target range. That will be a ‘mission accomplished’ moment since inflation has toppled from 8%+ to less than three. This has happened with no recession and no wild spike in the jobless rate. Yup, that soft landing we’ve forecast for a while. It’s now in sight. Thus, the CB can focus on trimming the cost of money in order to stabilize and augment economic growth, reduce the burden of public debt, get ready for the onslaught of mortgage renewals in the next twenty months, cut corporate costs and add jobs while easing the pressure on families – many of whom borrowed their way to misery.

If you’re Tiff, the head banking gnome, there’s no viable alternative to rate chops. They won’t be fast or deep. But they are inevitable.

How much?

The CB is now at 5%. Most Bay Street economists continue to believe the policy rate will be 1-1.5% lower by Christmas. The chances of an April chop are not huge, but not zero. The consensus opinion is that June will bring a reduction, followed by three more over the second half of the year.

Mortgage rates now have a 4-handle at many brokers. The big banks are barely over 5%. The spring rutting season begins soon, and there will be a Mortgage War breaking out in March. In addition, the five-year Canada bond yield has been stable lately at almost 1% below where it sat last autumn. So as new inflation data shows price hikes are being contained, and the Bank of Canada grows more benign – with the feds openly (and shamefully) encouraging cheaper money in the teeth of the renewal surge – you can imagine the result.

Mortgages next year, or perhaps even by late summer, could have a ‘3’ in front of them. “Our base case assumes the BoC starts to lower interest rates around mid-year,” says RBC economics. Adds BMO after the last inflation report: “Rate cuts are much more plausible in coming months, and we remain comfortable with our call that the Bank will begin trimming in June.” Says CIBC: “So even with GDP growth running somewhat stronger than the Bank of Canada expected, we still anticipate that interest rate cuts will start in June.”

Shelter costs are a huge component of the national inflation rate, and of that mortgage interest looms large. If the CB doesn’t cut rates, the nation will struggle to bring the cost of living down further. But if it aggressively chops, housing sales and prices could erupt again.

Meanwhile governments at all levels have viciously added to the cost of real estate with an unprecedented tsunami of fresh taxes – uncoordinated, overlapping, complex and dubious.

The bottom line?

Rates will fall this year. There is no alternative, save recession in Canada. The housing crisis will get worse. The political implications will be irreversible. It’s time to leave the big city.

About the picture: “Long time reader thank you,” writes Justin. “This is Roxy. We got here from the SPCA as a pup and still going strong at 15 1/2 years old. We live in the sticks on the west coast. Despite her medium size she’s always been happy to scare off black bears wandering through the yard to keep our kids safe. We won the dog lottery with. Keep up the great work Garth. Don’t be afraid to turn off the comments section. Most of us come here for your amazing insight and not the riff-raff chatter.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.


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