The mess

After behaving nicely, oil spurted 6% higher today. The US dollar fell, ours rose, gold lost, Bitcoin gained and Wall Street stumbled at the open. Some global markets have been pounded as a new US tariff reality dawns. And America restarted the Iran war.

Trump says he doesn’t care about Canada or CUSMA. But he posted a picture on Truth Social of a wall between the US and Canada made out of a giant furnace filter. Meanwhile the two dudes who were given the honour of walking across the last piece of steel on the new Michigan-Ontario bridge said shaking hands up there was the crowning moment of their lives.

We need less politics, they added. We should just come together.

There was bombing overnight in Iran and Iraq. The Saudis got into the fight. A US base in Jordan was targeted again. Iran is thought to have about 2,000 missiles left. And the rumors are that Pete Hegseth, the T-swilling Yank war secretary, is toast. Trump will need somebody to blame for the Middle East mess and the global woes it has caused. Might as well be a guy with nice pecs.

Into this vortex the world’s most important central bank will be deciding what to go with the globe’s most consequential interest rates. A few weeks ago Mr. Market gave odds of a rate hike this afternoon at just over 10%. By yesterday they had climbed to almost 40%. Predictions now for autumn are running at more than 80% for an increase.

As for this today’s rate decision, likely no change. The Fed will stay at 3.5-3.75% – unwilling to drop the cost of money to fuel inflation and reluctant to raise, cooling the economy at the cost of jobs and investment.

But with the latest news – more energy spikes, more war, more inflationary defense spending and the escalating trade war (hiking US consumer prices) – a swelling seems inevitable. The Fed is expected to jump its benchmark a quarter point in a few weeks, with a second increase by Christmas.

Bad news for the orange guy who is personally responsible for the current inflationary pressures. Higher consumer rates leading into the midterm elections when Americans are already paying $4 for a gallon of gas are a kiss of electoral death. His approval rating just hit a historic low, and Trump’s obsession with a ballroom and the 2020 election are miles away from the worries of American families.

Complicating things is Kevin Warsh. He’s a Trump guy. As the new boss at the Fed the president truly expects him to do what the last CB chair would not: follow orders and slash the cost of money. The president wants a 1% rate – which would throw gas on the economy, stocks and the housing market, slash debt service costs, tank the US dollar and accelerate the trade war and at the same time blow up consumer prices and goose inflation.

That’s not happening, Warsh says. He has experience as a Wall Streeter and a central banker in the past and is vowing to bring stability, not chaos. So expect war with the White House when Warsh does the responsible thing and jacks rates by the time snow gets here.

So, for us?

The Bank of Canada follows the Fed about 90% of the time. We’re also subject to similar inflationary pressures, and already our interest rates are far below those of the States. So the next move for our guys will also probably be up, not down. But not drastically. And with the knowledge that the maple economy is more prone to a beating than that of the US.

Almost a trillion dollars in AI and data centre spending in America is papering over the negative impacts of Trump’s crazy tariffs, the energy shock and his war escapade. Canada is getting a little slice of that, but not enough to outrun the impact of those trade levies being slapped upon us. It’s unclear if the Canada-US-Mexico trade agreement will live or die going forward, so our central bankers are likely to be careful about tightening.

Bottom line: mortgages will cost more next winter than they do now. Not bigly, but any hike is meaningful. So be ready. If you don’t like surprises, lock in.

About the picture: “Since you recently threatened us with cat pictures,” writes Fred, “I dug around in my archives for dog pictures. Found this from a recent trip to Mexico where I spotted this motley crew waiting patiently outside a local butcher shop for the owner to throw them a bone. Keep up the good work providing much needed, and free, financial education for the masses.”

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

Source: https://www.greaterfool.ca/2026/07/29/the-mess-4/