Rob Carrick's Take on GICs Today | Page 3 | GIC discussions | Discussion forum

Bill said
I'm not convinced by the narrative that markets expected a .75% increase as I barely follow this stuff and by osmosis it was clear to me as the time grew close that it was likely to be .5%. And I'm also pretty sure I'm not a better prognosticator than the market.  

To add to that, on expected "terminal rates," I'm also not convinced anyone, let alone the Bank of Canada, knows, with any degree of certainty where interest rates are to end up. 4.25% as a Policy Interest Rate may well be the market consensus, at this present time based on the available data and forecasts today. Today being key; that can, and often does, change.

These rate increases have been substantial, in a short period of time, and have not worked their way into the system. We're only starting to see the economic impacts.

Could they go higher than 4.25%? Very likely, I do think it would be wise for the Bank of Canada to consider pausing (until March 2023) after its next policy interest rate-setting meeting, either in November, or, most likely, early December.

Cheers,
Doug

A new era of bonds volatility, just look at the UK Bond Turmoil few weeks ago

agit said
"market expected" hmm = "journalist forecast"

Fact

BMO Economics
Bank of Canada: At the October 26 meeting, we look for a 50 bp action, lifting the policy rate to 3.75%

CIBC Economics
although at higher levels than we earlier expected. Another half point move this fall will put overnight rates in Canada at 3.75%, ... takes the ceiling on the funds rate to 4.25%.

RBC Economics
will require a further 100-125 bps of (cumulative) tightening at the remaining two meetings this year (more than the 75 bps we have penciled in) and another hike or two in 2023

former BoC governor said while the final objective remains the same — to likely hit 4 or 4.25 per cent by the end of the year

BofC remain on target to hit 4.25% as forecast but ALL major bank in Canada.

IMO It's simple Focus On The Goal And Ignore The Noise  

The fact is the bank economists don’t run the show, they do their analysis for the general public to consume.

The reality is the trading floor of the banks runs the show and collectively defines the market, thru buy and sell for corporate customers, pension plans and their own positioning.
And the traders do not ‘listen’ to the economists opinion/ forecast AT ALL. The economists are like the university professors in the ivory tower, the traders are the ones that form their own opinion to bring in the trading revenue for the bank.

And it’s clearly the market has priced in 75bps, and thats why the bond rallied 25+ bps after Tiff went less than what the market priced in. That’s a fact.

Btw a journalist repeats what a economist says…

That’s a straw man. Nobody said “market should be judged on one day”.

It was a simple point: “BoC did not meet market expectations on a particular day”. And that’s just a fact which can be illustrated by market movements in reaction to the announcement. We have to accept facts before expressing opinions.

Now… Long term effect isn’t a fact. That is a judgement call. By hiking less than expected, BoC gave impression of caving in to political pressure. Again. That impression is bad because if the market does not trust bank’s commitment to fight inflation it may mean the terminal rate will be higher and the recession deeper. It does not change anything in the long term: market always wins. Like when the bank promised “no rate hikes over the next few years” it was obvious BS because its not up to them. So in the medium term the bank has some work to do to restore credibility.

Here's the problem. Currently, inflation is around 7-8% and all we get is 5%/year GICs. 1 year from now, inflation rate will be compared to today's prices, which are grossly inflated over last year's prices.

Inflation will be lower next year but prices will remain high and this will strain the economy but not enough to deflate prices. It's a mess and any talk about the economy settling in a year is pure fiction.

I think GIC rates will rise to 5.5-5.8%/year by early next year and then start gradually going down towards the end of next year.

There are two many factors. Climate change, energy price, population getting older, trade wars, productivity, taxes, money supply, easing, QT, recession, Putin’s paranoia, Covid, Elon’s tweets, Tiff’s daughter’s boyfriend going rogue and Tiff having a bad day, US elections,… We can’t predict inflation. And the further out we go, the less predictable it is. Right now Mr Market is guessing that the inflation will stay high for a while and then drop back to 2% after 2 years or so. There are risks Mr Market is erring.

We do need Tiff to show he means business as he’s lost some credibility. Let’s see if he follows through.

Exactly, mordko, there are a ton of micro and mega-trends going on at any point in time, everybody's got their favourite(s) they think are the drivers. Though I'm not convinced we're headed for a recession if only because the prevailing media narrative being regurgitated is that one's on for sure next year and the obvious consensus is usually wrong. Plus interest rates are just getting back near a more normal (historically) level, not at all at real inflation-fighting levels, and policy makers are already signaling rate increases likely easing soon - and life has gone on quite well in the past with these levels of rates.