Intelligent Investment

Higher and For Longer

Canada Monthly Mortgage Commentary

September 28, 2022 2 Minute Read

Financial markets underwent another bout of heavy selling this month as central banks surprised markets with a more hawkish stance than anticipated. Both the Bank of Canada and Federal Reserve delivered 75 bps interest rate hikes which lifted policy interest rates into restrictive territory. Expectations had been growing that central banks were at or nearing their terminal rates for this cycle of tightening. However, these hopes were emphatically dashed when policymakers provided their forward guidance. With the fight against inflation proving to be tougher than expected, central bank guidance is now signaling even higher rates and for longer.

Central banks have no intention of easing up just yet as inflation remains widespread and well above target. In fact, even on this new path for the Federal Reserve, their own projections do not see inflation returning to target until 2025. Economists have also increased their expectations for the Bank of Canada’s terminal rate, though the situation is slightly different in Canada with marginally stronger growth expectations and early signs of cooling inflation. As things stand, interest rates are now projected to reach 4.0% in Canada and 4.6% in the U.S. where they are expected to remain throughout 2023.

Amid what the World Bank has called the most synchronized global withdrawal of monetary and fiscal stimulus in 50 years, there is a growing cohort calling for recessions in 2023, including for Canada. Predicated on slower consumer spending, a deepening housing correction and recessionary spillover from Canada’s major trading partners, the odds are rising for a recession while the Bank of Canada remains insistent that a “soft landing” is still possible.

The global outlook remains highly uncertain given the precarious conflict in Eastern Europe and the advent of fiscal policies that might undo the efforts of the central banks. A slowdown in real estate capital markets activity is underway in some segments as institutional capital reassesses the market and the theme of price discovery reemerges.

Economic Highlights:

  • Q2 2022 GDP growth was slower than expected, rising by an annualized pace of 3.3% with preliminary estimates of a contraction in July 2022.
  • Employment fell for the third consecutive month by 39,700 jobs in August 2022. The unemployment rate rose 50 bps to 5.4%.
  • Inflation slowed slightly to 7.0% in August 2022, led by lower gasoline prices while grocery prices rose at the fastest pace since 1981.



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