Intelligent Investment
Most Major Central Banks Now Firmly On The Path To Lower Interest Rates
Canada Monthly Market Commentary
August 30, 2024 2 Minute Read
As central banks around the world started to lower interest rates in recent months, the U.S. was a noticeable laggard in this policy shift. The delay from the Federal Reserve even contributed to bouts of sharp stock market volatility earlier this month as investors became increasingly sensitive to the impacts of continued high interest rates on the U.S. economy. However, the central bank recently announced that “the time has come for policy to adjust”, formally aligning the Federal Reserve with most of its global peers in starting or continuing to lower interest rates in the coming months. This has bolstered the already strong expectations for the first U.S. interest rate cut this cycle to happen in September. In fact, markets had even priced in a 35% chance for a larger 50 bps cut by the Federal Reserve next month.
In Canada, inflation measures have continued to trend down which enables the Bank of Canada to stay firmly on its lower interest rate path. As a result, markets have not only fully priced in a third consecutive interest rate cut in early September, but also call for continued decreases through to the middle of next year. Altogether, markets are expecting the policy interest rate to drop another 150 bps to 3.00% by July 2025 from its current level of 4.50%. If all goes according to plan, these steady stream of interest rate cuts will help secure the ideal ‘soft landing’ and prepare the Canadian economy for its return to growth.
Further economic tailwinds could also come from increased government action aimed at addressing the critical issues of declining productivity and housing undersupply. Recent announcements from the federal government to stem the flow of temporary low wage workers and unlocking federal land for affordable housing development could be the start of more initiatives that will strengthen the Canadian economy over the longer term. A rebound in economic growth will also support more favourable property market fundamentals and aid in its recovery. In fact, encouraging signs can already be seen in other parts of the world with some property valuations improving and returning to growth in Europe.
Economic Highlights:
- Headline inflation fell to its lowest level since March 2021 to 2.5% in July 2024 while core measures CPI-median and CPI-trim also cooled to 2.4% and 2.7%, respectively.
- Retail sales fell 0.3% month-over-month in June 2024 with advanced estimates indicating a 0.6% increase for July.
- Housing starts jumped to a 13-month high of 279,509 annualized units in July 2024, rising 15.7% month-over-month.
Viewpoints:
- Major central banks now aligned as Powell signals Fed cuts ahead
- Bank of Canada seen cutting rates deeper, faster over next year
- Fed's Powell, in policy shift, says 'time has come' to cut rates
- UK Warehouse Values Rise for First Time Since Rate Hikes Started
- German Office Prices Post First Gain in Two Years After Slump
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