Know when to hold ‘em

On Wednesday, the Bank of Canada held its key rate unchanged at 5% – the third time it has done so since July. It noted that the global economy is slowing, along with inflation, but the softening numbers weren’t enough for it to lower rates. It also noted the rise in shelter inflation – rents and high mortgage costs due to elevated interest rates.

As always, the bank said it may raise rates in the future if inflation picks up. But experts are warning that with mortgage renewals coming due for 74% of Canadian homeowners – roughly three million people – over the next year and a half, there will be a significant risk of default. Plus, the risk of a recession still looms. That may push the bank to consider a cut sooner rather than later. In September, Prime Minister Justin Trudeau predicted rates would fall by mid-2024.

Economists in the United States are thinking roughly along the same lines as Trudeau – though they’re a bit less optimistic. As the Financial Times reports, its FT-Booth survey expects the Fed will hold rates at a two-decade high until “at least” July, possibly later. The US economy has remained strong, with GDP growth hitting an annualized 5.2% in the last quarter.

Observers are watching for signs of a recession on both sides of the border while households stretch to meet monthly bills, rent, and mortgages. The Bank of Canada and the Fed will continue to walk a fine line between taming inflation and sending households over the financial cliff.