The United States Federal Reserve just made its fifth interest rate hike this calendar year, pushing up rates by 0.75%.
This is going to make life more expensive for many Americans. It’s also a good indicator that the Bank of Canada isn’t done with their rate hikes either.
Just two weeks ago, Bank Governor Tiff Macklem announced a Canadian rate hike of 75 basis points. But he signaled that it wouldn’t be the last such move this year.
Consumers are scrambling to figure out what this means for them.
The objective of the central bankers is to cool inflation. So, fingers crossed, this means that in the near future the price of groceries and other goods won’t be rising so aggressively or even begin to cool.
That’s the good news. The bad news is that anyone exposed to current rates will really feel the pain soon.
Anyone who has a variable rate mortgage will be paying a higher interest rate. Anyone who has a fixed mortgage coming up for renewal will likewise see their monthly payments go up.
For Canadian homebuyers who were caught up in recent bidding wars and took out a mortgage a few years ago, they could see their monthly housing costs increase by hundreds or even a thousand dollars a month.
Some analysts were actually calling for the U.S. Fed hike to be even higher, so people weren’t left with lingering anxiety that the hikes were just going to keep going and going.
“Why not just rip off the Band-Aid. Let’s get there in one day. But of course, the Fed won’t do that,” Wells Fargo’s Michael Schumacher said recently on business and finance station CNBC, as he called for a 150 basis point hike.
Federal Reserve Chairman Jerome Powell is well aware of the pain this will cause. “We must keep at it until the job is done,” he said in August. “While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Regardless, there’s going to be a whole lot of pain to go around.
Post a Comment