Critics noted that economic growth has slowed in the current quarter and that the Fed’s preferred measure of inflation (the rate of increase of the price of consumer expenditures) had fallen below the official 2pc target. Given that the Fed has long said that its interest-rate policy is “data dependent,” why did it press ahead with its previously announced plan to continue tightening monetary conditions? The FOMC statement announcing the latest interest-rate hike gave no explicit reason for it. Fed Chair Jay Powell’s remarks at his press conference also gave no reason for maintaining the originally planned rate increase despite the economic slowdown. Determining the appropriate level of the interest rate depends on balancing a changing array of considerations. So what considerations might the FOMC have had in mind in deciding to raise the rate this month and projecting a higher rate in 2019? There are three possibilities. First, the current level of the real … [Read more...] about Why is the Fed still raising interest rates?
Why bank interest rates are so low
By Gordon Pape Special to the Star Fri., Nov. 23, 2018 Interest rates are rising. When that happens, bond prices drop. It’s one of the basic rules of investing. But how is that playing out in today’s investment climate? You may be surprised. The Bank of Canada has raised interest rates three times this year, with another quarter-point move possible in December. You would normally expect that such aggressive action would significantly knock down bond prices. However, the FTSE Russell Canadian Universe Bond Index was down only 0.12 per cent year to date as of the Nov. 16 close. In other words, only a tad below break-even. Government bonds took the biggest hit, off 0.22 per cent as a group. Corporate bonds were actually ahead 0.16 per cent. Not big numbers either way. And what about stocks? To that point, the S&P/TSX Composite Index was down 6.5 per cent for 2018. Where would you have rather had your money? Mutual fund returns reflect a similar … [Read more...] about Rates are heading up. Time to buy bonds?
caption Fed Chairman Jerome Powell source Mark Wilson/Getty; Samantha Lee/Business Insider The Federal Reserve on Wednesday raised its benchmark interest rate for the sixth time since late-2015. The Fed adjusts the interest rates that banks charge to borrow from one another, which is eventually passed on to consumers. Banks give out money all the time – for a fee. When we borrow and then pay back with interest, it’s how banks make money. The cost of borrowing, known as the interest rate, can make a big difference in which credit card you choose or whether you get one at all. But if your bank wants to make it more expensive to borrow, it’s not as simple as just slapping on a new rate, as a grocer would with milk. It’s something controlled higher up, by the Federal Reserve, America’s central bank. Why does the Fed care about interest rates? In 1977, Congress gave the Fed two main tasks: … [Read more...] about The Fed just raised interest rates — here’s how it happens and why it matters
By Tess Kalinowski Real Estate Reporter Thu., May 10, 2018 First-time home buyers already struggling with more stringent mortgage rules have been dealt another blow by an increase this week in the Bank of Canada’s five-year mortgage rate. The move is also one more reason why the Toronto region’s soft spring real estate market could linger longer, according to some. On Wednesday the Bank of Canada followed the country’s big banks and announced it was raising its 5.14 per cent benchmark mortgage rate to 5.34 per cent. The central bank rate is different from the rates that banks offer consumers, but it’s used to assess mortgage applications. Since Jan. 1, home buyers with a 20 per cent downpayment have had to qualify at the central bank’s five-year rate or at 2 percentage points higher than the mortgage rate being offered by their bank. Article Continued Below That alone has diminished buying power by 16.5 per cent, according … [Read more...] about Higher interest rates add to home buyer struggles
To raise or not to raise! It seems simple basic economics calls for the BSP MB to move on interest rates to tame rising inflation. But it isn’t that simple. What the BSP MB does tomorrow is still up in the air. Should the BSP MB succumb to pressures from bankers to raise interest rates? Not too fast, some analysts like my friend John Mangun says. True, the inflation rate has breached expectations. But it is cost push in nature, possibly a temporary effect of TRAIN 1. Raising interest rates will not help moderate this kind of inflation. This is not the classic demand driven inflation that can be theoretically moderated with a rise in interest rates. In a cost push situation, higher interest rates will just increase borrowing costs for businesses, consumers, and even the government. Since consumers have no choice but to pay for basic goods and services, the higher cost will be passed on in terms of higher prices. As a senior citizen partly living off interest on investments, I like … [Read more...] about Inflation and interest rate