The Bank of Canada will raise interest rates by a quarter-point for a second straight meeting to 5.00% on July 12 following a five-month pause earlier this year and then hold well into 2024, according to a majority of economists polled by Reuters.
Maybe/probably but it’s a false dichotomy. Interest rates are only one mechanism for controlling inflation, and a target coarse one.
Consider housing, increasing the interest rates makes it harder to buy a house, but it also makes it harder to build a house. Since this inflationary spiral we seem to be getting sucked into is at least partly (probably mostly) tied to restricted supply of “the stuff to buy” side if the balance, prolonged high interest rates could lead to stagflation.
This same high inflation also effects capital spending at any company seeking to expand production.
I’m not an economist, and I’m sure you’d get three different answers from two different economists, but I’m thinking we’re getting into that tickle point where interest rate hikes might start putting us into stagflation. Fundamentally, central banks aren’t going to fix this global inflation problem by playing with interest rates. You’re dealing with a real loss in production wrt the pandemic, and now a major land war in a highly agriculturally productive area of the world.
The problem is that people increasingly CAN’T afford the prices. Where are all they people that can afford near million dollar homes for 8% interest (or cash) come from?
At best, they’ll be people who are landlords who already have significant wealth and will rent at sky-high prices…
Maybe/probably but it’s a false dichotomy. Interest rates are only one mechanism for controlling inflation, and a target coarse one.
Consider housing, increasing the interest rates makes it harder to buy a house, but it also makes it harder to build a house. Since this inflationary spiral we seem to be getting sucked into is at least partly (probably mostly) tied to restricted supply of “the stuff to buy” side if the balance, prolonged high interest rates could lead to stagflation.
This same high inflation also effects capital spending at any company seeking to expand production.
I’m not an economist, and I’m sure you’d get three different answers from two different economists, but I’m thinking we’re getting into that tickle point where interest rate hikes might start putting us into stagflation. Fundamentally, central banks aren’t going to fix this global inflation problem by playing with interest rates. You’re dealing with a real loss in production wrt the pandemic, and now a major land war in a highly agriculturally productive area of the world.
Raising rates seems to do two things to housing:
Builders are still going to build, they just need to target people who can afford the higher prices.
Looking at the construction industry in Quebec, builders aren’t building anything… There’s zero clients right now…
Meanwhile in Ontario there’s not enough labor in construction.
The problem is that people increasingly CAN’T afford the prices. Where are all they people that can afford near million dollar homes for 8% interest (or cash) come from?
At best, they’ll be people who are landlords who already have significant wealth and will rent at sky-high prices…
deleted by creator