When will the Bank of Canada lower interest rates?
Soon, said Donald, soon. She went on to suggest the BoC will cut interest rates in early 2024. “Probably in Q1 or Q2, and we’re ahead of the pack on that one. The [U.S. Federal Reserve] could be cutting interest rates by mid-year.” Those of us looking to buy a home or renew their mortgage will be very happy to see a change in mortgage rates in Canada.
What about fiscal policy?
Morneau was the PMAC conference’s lunchtime keynote speaker. When asked about the state of the economy, he said: “I wasn’t surprised by the continued strong performance in the U.S. economy. And that, I think, is at least a positive indicator.” He added that a recession will drag on in both Canada and the United States, and that the government is feeling pressured to take action on spending and keep up with services.
“What the government needs to do is to make sure that, fiscally, it’s acting in a prudent fashion,” Morneau said. “From my perspective, I don’t think it’s time for introducing new programs. I think it’s time to carefully open the world’s expenditures.”
Do Canadians have enough savings?
That depends. Not just on who you ask, but also the numbers you look at, said Donald. “One of the reasons why we have not yet experienced a recession in the United States, and why it’s been slow in Canada, is because apparently there was excess savings everywhere,” she said. “Here’s the dirty little secret: we actually have no idea how much excess savings is in the system.” The ranges in reports go from $0 to USD$1.5 trillion, and that’s because there are no historical models for what’s happening right now, and none applicable to the current state of the economy.
There are Canadians concerned about their current finances and having enough savings, as well as the ability to save for retirement. Low-risk investments like guaranteed investment certificates (GICs) and high-interest savings accounts are looking pretty favourable with their higher-than-typical rate of return (say, compared to when the BoC rates are lower).
Next steps in fixing the economy and inflation
Repairing the economy isn’t about savings or defining a recession. “The excess savings story actually masks the forest for the trees, because we’re talking about the largest transfer of government spending that we have seen in a post-war period in Canada and the United States,” said Donald.
The government typically spends money during hard times, including recessions, to move the economy back into a good state. But government debt is high, and Canadians and Americans feel “worse off.” “For the first time in my career, we were looking at the 10-year yield, and we’re trying to figure out what’s going on in the bond market,” said Donald.
Typically, during a recession in Canada, inflation would fall because Canadians would spend less money. But in today’s global market, taming inflation isn’t just about consumer behaviour, but also about weather, war and other geopolitical issues. “It’s actually coming from a myriad of factors. But moving forward, we know that the drivers and the ways that we calculate inflation are shifting.”
Lisa Hannam
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