Add Bank Of Canada To The List…

And now, you can add the Bank of Canada to the list when it comes to policymakers dropping their tightening bias in light of ongoing concerns about the global economy. On Wednesday, one of the bigger overnight stories was the extent to which unexpectedly lackluster inflation data effectively cemented the case for RBA rate cuts, less than three months after Philip Lowe first tipped a shift to a neutral policy stance. Although not everyone agrees that the case is made, most do, and the market re

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One thought on “Add Bank Of Canada To The List…”

I have been thinking about what the new narrative will be going forward. I think it will be the opposite of Sturm and Drang, kinda like animal spirits on Xanex. I think that growth will be subdued, inflation will be tolerated around 2% without anyone who counts, hyperventilating about hyperinflation. The CB’s will all be on hold, not dropping rates but not threatening to raise them either. Basically it will be about muddling along and allowing industry and consumers a year or two to adjust their behaviour to present interest rates, without the threat that they will just keep rising. This allows for some slow de-leveraging to take place, for example in the Canadian mortgage market, where stats show just that happening.

It is a Goldilocks kind of scenario, but will frustrate those who want aggressive growth in economies, like Trump. There will be no throwing gasoline on the fire to boost growth, as with the tax cuts, as that just causes a counter-reaction from the Fed. It is really a continuation of the Obama-era modest growth, steady but slow.

My sense is that we are still very much dealing with the after effects of the 2008 GFC and the dislocations and anomalies it created, like vast amount of bonds and other assets purchased by CB’s.
We have to accept that we are not going back to the old business cycle of recessions followed by strong growth that leads to over-heating and the Fed removing the punch bowl, and repeat. The model is now the after effect of the 90% collapse of the Japanese stock market in 1989. Japan has some special demographic challenges, made worse by no immigration, which make their situation especially bad but
as the old song has it “I’m turning Japanese, I’m turning Japanese, I really think so!”