Rate day

Down she goes.

The herd of economists got it right this time. The Bank of Canada today nipped its policy rate a quarter point, sending the chartered bank prime lower, gifting families facing mortgage renewals, signalling the end of an historic tightening cycle, beating the rest of the industrialized world and arriving as Canada edged closer to a rate-induced recession.

Yeah, it’s but a quarter point. However it’s the grandest twenty-five basis points our CB has ever delivered. This is the first cut in four years. It marks the end of a ten-bagger hikefest which killed off the new-build real estate sector, doused buyer FOMO, raised unemployment even as the population swelled, helped crush the ruling Liberal party, depressed realtors and gave us – for the first time in history – 70-year bank mortgage amortizations.

With this, Tiff declares victory. Inflation went from over 8% to under 3% without tanking everything. In central bankers’ world, that’s a win.

“With continued evidence that underlying inflation is easing,” say the bank, “…monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points. Recent data has increased our confidence that inflation will continue to move towards the 2% target.”

Is this just peachy? Can we now greenlight crazy borrowing and spending again and boogie lik it’s 2019?

Nope. As pointed out yesterday, there are risks as the cost of money falls (and CIBC says this is the first of four cuts this year). Real estate could reignite, easily. The news today that sales in the GTA fell 20% y/y last month, with a drop in prices and a surge in listings underscores that. Buyers have been sitting on the sidelines because lenders, brokers and agents have told them for months rate would drop – and the time to pounce would come.

But despite recent declines, property values are still crazy. This could be the coup de grace for houseless Mills and GenZers.

There’s the dollar. Because the US Fed won’t be cutting for months, the loonie could languish. Imports get pricier. Inflation be stoked a little. And the federal government – which has actually lobbied for a rate drop (through Chrystia) – could completely blow things by heaping on more stimulus as it worries about next year’s election. Spending is already crazy and set to increase another $50 billion. If these guys do something bizarre – like move towards UBI (a guaranteed income for all) – we could be pooched. Rates would have to back up. Quelle mess.

And Trump. We dealt with the potential of a MAGA win a few days ago. For Canada the result of trade sanctions could be a drop in GDP, a spike in grocery prices and force the Bank of Canada to jump rates by about 2%. So imagine buying a house next month in a mortgage-wilting euphoria only to see your equity smoked if home loans went to 8% in 2026. Yikes.

But then, it could all be okay. Maybe Tiff got it right. Perhaps this is the tipping point – the moment at which we throw a little rate stimulus around to bolster confidence, get those new houses under construction again, encourage businesses to borrow, expand and hire and lure investors back from dead-end GICs and HISAs into growth assets supporting the economy.

As we said yesterday, there is no correct answer to this. Nor do we know where today’s decision will lead. But a corner has been turned. Hang on.

Why did this blog fail you?

Yesterday we gave you a chance to vote on what the CB would do today, the ramifications and a few political choices. Direct democracy. What could go wrong?

Lots, apparently. For technical reasons, the poll failed. It looks like we tried to stick a piece of an old Chevy into a Tesla, which resulted in a meltdown. The tally failed. The blog went turgid. The entire server was thumped. As webmaster William Stratas explained it to me, “The key issue is that the plugin has a memory leak and the server RAM usage topped out, thus locking out the whole site (see RAM chart below — you can see the part in middle where the 2 restarts happened, then RAM usage dropped, and then topped out again after both restarts).  Thus, definitely a faulty plugin. As the WordPress platform’s code evolves, these kinds of vulnerabilities in independently developed plugins can emerge”

Whatever the chart means, it looks serious. Bill threw jumper cables on the whole mess a couple of times, but to no avail. Our poll went dark. Now you will not have a chance to vote on anything until the ruling elite deems it suitable. Best get used to hearing that…

About the picture: “Hi Garth – Buddy from Salt Spring here – just wanted to share with you my story. 9 months ago I was living in a shelter in the 604 and some kind people at the BCSPCA put some pix of me up to help find me a new home. Some very nice humans came and got me and a few ferries ( they ran on time that day !) a few days later I landed on 5 acres on Salt Spring Island. I now have shared housing ( like a lot of SSI) and also secured my very first job as Director of Security for a retirement home of 7 aged out layer hens. We have had our ups and downs ( their food tastes funny) and the old gals can be a bit peckish but all in all I am greatful for being an optimist and having someone taking a risk with me. My humans would like you to know your sage advice humour and magical way of imparting knowledge has been so appreciated ! Thank you and Dorothy for all you do for us critters. Big Salt Spring hugs to you. Sincerely, Buddy.” (via Nicholas)

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