Interest rates hike reflects ‘unusual’ circumstances

[Summitric]

July 15, 2022 by Adam Malik

Interest rates hike reflects ‘unusual’ circumstances​

Image credit: Depositphotos.com
The Bank of Canada raised its interest rate by a full percentage point. That’s the biggest single increase since August 1998.

It’s part of a strategy to bring inflation down to its target of 2 per cent after reaching a nearly 40-year high of 7.7 per cent in May.

Most experts anticipated a three-quarter percentage point increase. But going to a full point reflected “very unusual economic circumstances,” said Bank of Canada governor Tiff Macklem, according to The Canadian Press.

He added that not only is inflation “too high” but consumers are worried that these high numbers will stick around.

“We cannot let that happen. Restoring price stability — low, stable and predictable inflation — is paramount,” Macklem said.

He acknowledged that higher rates will indeed make Canadians lives more difficult when coupled with high inflation. However, increasing rates are necessary to ensure high inflation doesn’t become the norm as it can lead to even more pain for the economy.

The Bank of Canada noted that Canadian inflation is “largely the result of international factors,” but that “domestic demand pressures are becoming more prominent.”

In the U.S., inflation showed no signs of slowing down as rates hit 9.1 per cent in June.

Rising costs for gasoline, shelter and food were the main drivers. Energy prices have increased by 41.6 per cent in the past year. Food costs are up by 10.4 per cent. Shelter costs are up by 5.6 per cent.

 

[lilduke]

how will raising interest rates lower the cost of food or gas ?

Create problems and then fk chit up worse.

 

[Stg2Suby]

Raising rates is the only real tool the central banks have to control inflation. They pretty much have to crash the economy at this point (ie cause a recession) to get things under control. Otherwise if they sit back and don't do anything, wages will start increasing to keep up with the inflated prices, then the whole things spirals out of control and you end up with the "wheelbarrow full of cash to buy a loaf of bread" scenario that has happened in numerous countries before. It's a scary situation really.

 

[lilduke]

More like they are just a bunch of tools. They need to get out of the interest rate fixing buisness if you ask me.


Stop with the handouts and covid bullscit for a starter..m

 

[BILTIT]

Raising rates is the only real tool the central banks have to control inflation. They pretty much have to crash the economy at this point (ie cause a recession) to get things under control. Otherwise if they sit back and don't do anything, wages will start increasing to keep up with the inflated prices, then the whole things spirals out of control and you end up with the "wheelbarrow full of cash to buy a loaf of bread" scenario that has happened in numerous countries before. It's a scary situation really.

"The Great Reset", coincidental? You have to crash it before implementing a new system. Who REALLY controls the banks and inflation? Dont believe the crap they have told us for years its pure BS. Why is nobody talking about the billions of canadian dollars that are being printed in the last couple years? They dont want you to know about the real reason for inflation.

 

[lilduke]

Inflating the money supply is the definition of inflation. If you go get a million dollar mortgage from the bank. The Bank doesnt have that money, the central bank just pulls it out of thier ass.

 

[Mike270412]

"The Great Reset", coincidental? You have to crash it before implementing a new system. Who REALLY controls the banks and inflation? Dont believe the crap they have told us for years its pure BS. Why is nobody talking about the billions of canadian dollars that are being printed in the last couple years? They dont want you to know about the real reason for inflation.

Inflation=greedy billionaires fawking us working schleps a little harder than usual.

 

[Frosty19]

Why bother now, they should've raised interest when their little covid shitshow started because money seemed to be no option with the amount of handouts and low prices because of low demand.
Used vehicles/toys/real estate sky rocketed when everyone was staying home.
Instead they wait until prices are already out of hand.

 

[ABMax24]

Inflating the money supply is the definition of inflation. If you go get a million dollar mortgage from the bank. The Bank doesnt have that money, the central bank just pulls it out of thier ass.

Exactly, being the reason interest rates are being increased to keep this from happening further. Slow the inrush of made up money into the economy.

The liberals done and screwed us hard. So now we will get to look at high interest rates for the short to mid term.

If anyone wants to know what happens next then look at the timeline of Pierre Trudeau. Boy wonders career is earily similar.

 

[firstdoo]

Bank of Canada’s track record on raising interest rates to lower inflation over the last 60 years has an effect rate of 0%. Unless you take into account the recessions they’ve caused. They completely missed the boat. Should have started this in 2020, 25 basis points at a time.

 

[bjd68]

Realistically they need real rates higher than inflation which is impossible in this enviroment they are now backed into a corner, the only thing they have is to talk tough about raising rates because most of this is phycological if u kill demand by putting people into fear u can slow consumer spending. The central banks can not print oil and food. Still think this is all part of there Great Reset, I know, I know its all a conspiracy theory Righttt ??

 

[bjd68]

Heres a good video with Jeff Snider that explains how the Fed printing currency is not actually inflationary. Fiscal stimulus however which we had alot of from the Plandemic actually is very inflationary.

 

[Cyle]

Yep they waited too long and as per their history will overcorrect and have to lower it back pretty quick to bring the economy back.

 

[2kDoo]

The sooner housing crashes the better. Just as easily as some people made 100k within months in the early 2000's some will lose just as badly

 

[Cyle]

The sooner housing crashes the better. Just as easily as some people made 100k within months in the early 2000's some will lose just as badly

I don't wish bad upon anyone, but I can't say I will be sad if housing tanks. I don't think it'll be insane, maybe 15% I think there's too many people with a ton of money to buy up deals before they could drop anymore then that.

 

[2kDoo]

I don't wish bad upon anyone, but I can't say I will be sad if housing tanks. I don't think it'll be insane, maybe 15% I think there's too many people with a ton of money to buy up deals before they could drop anymore then that.

In St. Albert in the last 4 months I've seen places drop 50k
The over inflated places will bust IMO

 

[snoflake]

Ya, figured the time was coming for houses, vehicles and other motorized toys to get back in line. Been kinda nice owning stuff for a year or 2 without anything depreciating at all. Sure wouldn’t want to be the guy that paid retail for something a year or 2 old. Now way upside down and unable to sell.

 

[Crustyolddude]

I don't wish bad upon anyone, but I can't say I will be sad if housing tanks. I don't think it'll be insane, maybe 15% I think there's too many people with a ton of money to buy up deals before they could drop anymore then that.

Lol. Expect 40-50% drop in next 36-48 months. Plus 12+ years to return to these current levels. People , governments have gorged on debt. Time for the hangover. Normal interest rates for last 2000 years average at 5-8%. No where in historical data has interest rates been at -0.5( Europe)to 0.5% for a decade. Low interest rates are sign of unhealthy economy. Free non interest money. Never repay loans. This why real estate has gone from 200k to 800+k in 10 years. More people whom should not be in the market, are making the demand greater, and supply less. Therefore up she goes. Higher interest rates will weed out 25-50% of home buyers. Less demand, more supply will be available. Price drops. Don‘t catch a falling knife.

You’re not special — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate

www.greaterfool.ca

The Kelowna Real Estate Report says K-town is sinking into bear territory for detached homes, while townhomes are already mired in one. The number of detacheds for sales has surged 88%, flipping the market from one favouring sellers to one supporting buyers in a “significant slowdown.”

And what of the prevailing emotion?

“Fear is extreme in all segments. The detached segment is continuing to lead the change in the sentiment shift from extreme greed to extreme fear.”

And here is the prediction (the chart is too graphic to reproduce on a family blog): “Detached prices forecasted to drop -42.72% or -$557,553 over the next 12 months.” In other words, from close to $1.3 million, descending into the eights. And heaven help those YVR refugees who came to the Valley in February to plunk their dollars down.

There is no escape. Only excuses.

 

[Cyle]

Lol. Expect 40-50% drop in next 36-48 months. Plus 12+ years to return to these current levels. People , governments have gorged on debt. Time for the hangover. Normal interest rates for last 2000 years average at 5-8%. No where in historical data has interest rates been at -0.5( Europe)to 0.5% for a decade. Low interest rates are sign of unhealthy economy. Free non interest money. Never repay loans. This why real estate has gone from 200k to 800+k in 10 years. More people whom should not be in the market, are making the demand greater, and supply less. Therefore up she goes. Higher interest rates will weed out 25-50% of home buyers. Less demand, more supply will be available. Price drops. Don‘t catch a falling knife.

You’re not special — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate

www.greaterfool.ca

The Kelowna Real Estate Report says K-town is sinking into bear territory for detached homes, while townhomes are already mired in one. The number of detacheds for sales has surged 88%, flipping the market from one favouring sellers to one supporting buyers in a “significant slowdown.”

And what of the prevailing emotion?

“Fear is extreme in all segments. The detached segment is continuing to lead the change in the sentiment shift from extreme greed to extreme fear.”

And here is the prediction (the chart is too graphic to reproduce on a family blog): “Detached prices forecasted to drop -42.72% or -$557,553 over the next 12 months.” In other words, from close to $1.3 million, descending into the eights. And heaven help those YVR refugees who came to the Valley in February to plunk their dollars down.

There is no escape. Only excuses.

Maybe those insane drops in places that seen insane growth the last few years. But in Alberta I don’t see those kind of drops happening.

 

[JayT]

Maybe those insane drops in places that seen insane growth the last few years. But in Alberta I don’t see those kind of drops happening.

I actually think things will hold fairly steady in Alberta. The oil industry is insane, there are not enough people here to fill the jobs and houses are still somewhat reasonably priced.