Alfred Lam, CFA CI G , Senior Vice lobal Asset Management President and Chief Investment Officer
The Bank of Canada and the US Federal Reserve hiked interest rates in 2022. At the beginning of the year, Canada’s overnight and US Fed Funds rates rose from 0.25% to 3.25%. However, economies and job markets have felt very little pain, and inflation has only cooled marginally, which is considered bad news as it means more hikes to come. Note high interest rates typically lead to recession.
We suspect current rates are above neutral, meaning financial conditions are tighter than normal, resulting in typic ally lower risk appetite and spending. Since rates were coming from floor, even they have risen aggressively. Up until September, they were only below neutral, but this helps to explain why economies remained strong and inflation did not cool more.
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