[AltaRed]

I think they will still deliver on promised hikes and QT to maintain credibility. The extent of which may be muted if we see inflation wane and the market fall. My fear is that they cannot curb inflation as some profess the major causes are beyond the Fed (and BoC)'s reach. If that occurs we may see a a major collapse akin to 2008 or worse. A sharp crash and reversal would be better than a decade of slow decline. I think it would shake out a lot of non investors. I can't predict the future so I just hold my nose and try to steer into the skid. I placed some orders on a:beautiful reverse high day such as this. My portfolio was down just under .5% today. VEQT 1.25% Tomorrow it could be the inverse. I am not ecstatic about the YTD returns but understand that 10 and 20 percent declines are normal market action.

If central bankers continue with interest rate hikes, a lot of money will have to go to debt payments taking cash out of the system. That cannot help but reduce consumer demand for a lot of commodities and a lot of consumables. It wouldn't take much at the margin, e.g. a reduction of 3-5 million barrels per day of oil to send oil prices back down to $70 or more. Imagine the drop in demand (and used car prices) for vehicles when financing costs rise to 8% or more. That is standard recession type stuff so many of the causes of current inflation will indeed vanish.

 

[MrMatt]

If central bankers continue with interest rate hikes, a lot of money will have to go to debt payments taking cash out of the system. That cannot help but reduce consumer demand for a lot of commodities and a lot of consumables. It wouldn't take much at the margin, e.g. a reduction of 3-5 million barrels per day of oil to send oil prices back down to $70 or more. Imagine the drop in demand (and used car prices) for vehicles when financing costs rise to 8% or more. That is standard recession type stuff so many of the causes of current inflation will indeed vanish.

Stalling the economy isn't a great way to deal with inflation.

 

[james4beach]

All I would like to wish good sleep for “self made investors“ who believed stocks only go up and invested arm and leg on margin.

I wish them well too.

Investing is hard. I've been investing for a couple decades and this is still hard for me.

 

[AltaRed]

Stalling the economy isn't a great way to deal with inflation.

If supply cannot meet demand, and if one is not into the sorry world of price controls aka the late '70s and early '80s, then demand must be constrained via debt servicing costs to take excess out of the system. That is kind of how it has always been done to reduce consumption and there is little doubt in my mind, that is what is going to play out again.

 

[MrMatt]

If supply cannot meet demand, and if one is not into the sorry world of price controls aka the late '70s and early '80s, then demand must be constrained via debt servicing costs to take excess out of the system. That is kind of how it has always been done to reduce consumption and there is little doubt in my mind, that is what is going to play out again.

And done wrong cutting demand will cut sales and supply and make it worse.

The problem is we've stimulated for so long we have a lot of catchup to do to fix.

 

[m3s]

How long before the JPow Pivot?

 

[james4beach]

How long before the JPow Pivot?

Yeah I wonder too. We should create a poll. How long until the Fed pauses and doesn't hike rates at one of their meetings?

Economists unanimously think the Fed is going to hike 50 basis points at every meeting from now on.

 

[Thal81]

I think they'll keep on hiking by 50 bps until we hit a technical recession, then they'll hold until it gets resolved (no cut!). It might happen sooner in the US than in Canada given their negative Q1 GDP, and in that case the BoC might still hold because they wouldn't want our rate to diverge too much from the Fed.

edit: My best guess is we'll get to 2% then we'll hold for a while, and probably resume hikes in 2023 if the war, supply chain issues and food shortage get resolved. We'll see!

 

[AltaRed]

And done wrong cutting demand will cut sales and supply and make it worse.

The problem is we've stimulated for so long we have a lot of catchup to do to fix.

Not really. It is important to bring supply and demand back into balance to reduce price increases. That is macro Econ 101. Hiking rates cuts indebted consumer demand more than provide headwinds to supply. From The perfect storm this quote

Some of you will say that is all well and good, but couldn’t we see stagflation appear in the coming year or so? Isn’t growth going to slow as the Bank of Canada raises policy rates? Yes, growth will slow—the goal of higher rates is to reduce excess demand and bring it more in balance with supply. That should reduce inflation, undercutting the inflation part of stagflation. For example, there is a lot of excess demand for interest-sensitive goods and for housing, some of the key contributors to inflation pressures. Supply and demand should come more into balance in these segments as policy rates rise, reducing inflationary pressures.

 

[m3s]

edit: My best guess is we'll get to 2% then we'll hold for a while, and probably resume hikes in 2023 if the war, supply chain issues and food shortage get resolved. We'll see!

Yea don't disagree with the 2% but I don't see the war/supply/economy getting resolved that fast

Russia is hitting a major port city Odesa with hypersonic missiles and the first gas line through Ukraine was shut down. Supply line infrastructure and labour takes a long time to establish. Things are escalating with Finland as well

Young american colleagues have stretched for +$500k USD homes uninspected and sight unseen. They don't even realize how f'd they are if planned rate hikes go through but they are also tired of landlords kicking them out to cash out

Rates have been trending down for decades to the point that I don't think we can handle above 2% even without a war

 

[MrMatt]

And done wrong cutting demand will cut sales and supply and make it worse.

Not really. It is important to bring supply and demand back into balance to reduce price increases. That is macro Econ 101. Hiking rates cuts indebted consumer demand more than provide headwinds to supply.

And DONE WRONG, will make it worse.
So they hike rates or gas prices and everyone stops buying cars, so they slow/shut down the auto production, which puts people out of work, which lowers demand even more..
Or crash the housing market etc, which will slow construction, causing even mroe long term problems in housing.

It really shouldn't be a point of contention that if they do this wrong there could be significant negative reprecussions.

 

[AltaRed]

I really should not continue arguing with you. Long before there is an 'overshoot' which is the essence of your argument of 'done wrong', there will/should be a taming of current inflation. Hiking interest rates leaves less cash to buy both gas and cars. Both gas and cars are in major supply shortage so reduced demand will bring the prices of both gas and cars (especially used vehicles) down, and thus inflation down. There is currently a large gap between supply and demand of both. There is virtually no fear of an 'overshoot' in either case given the size of the current gap.

Housing is no different. We need to substantially reduce the appetite for house buying to bring house prices down 20-30% to allow new buyers into a balanced market. It will also wash out the speculators in the system and there is no better group of folk to hand their heads back too. Land speculators, speculative buyers including those who are greedy buying investment housing, and realtors all need to be flushed from the system to bring some sanity back into the RE market. There is already a labour shortage servicing land and building homes so there is plenty of margin for error.

Trouble is..... BoC is already cautioning about balancing the need to tame inflation with housing market impacts. They are in effect giving themselves room to blink. That could turn out to be a major error.

You were not likely around in the '70s and '80s when excesses just about collapsed the system. Trust some of the older and wiser folks around here who know we have excesses in the system today that must be flushed out very soon before further expectation of continued inflation becomes a popular mindset and we have the risk of systemic structural inflation In my opinion, an overshoot is far less dangerous than not doing enough to body slam what is going on today. Central banker wishes for a soft landing may be possible but it is likely wishful thinking.

 

[MrMatt]

I really should not continue arguing with you. Long before there is an 'overshoot' which is the essence of your argument of 'done wrong', there will/should be a taming of current inflation. Hiking interest rates leaves less cash to buy both gas and cars. Both gas and cars are in major supply shortage so reduced demand will bring the prices of both gas and cars (especially used vehicles) down, and thus inflation down. There is currently a large gap between supply and demand of both. There is virtually no fear of an 'overshoot' in either case given the size of the current gap.

Housing is no different. We need to substantially reduce the appetite for house buying to bring house prices down 20-30% to allow new buyers into a balanced market. It will also wash out the speculators in the system and there is no better group of folk to hand their heads back too. Land speculators, speculative buyers including those who are greedy buying investment housing, and realtors all need to be flushed from the system to bring some sanity back into the RE market. There is already a labour shortage servicing land and building homes so there is plenty of margin for error.

Trouble is..... BoC is already cautioning about balancing the need to tame inflation with housing market impacts. They are in effect giving themselves room to blink. That could turn out to be a major error.

You were not likely around in the '70s and '80s when excesses just about collapsed the system. Trust some of the older and wiser folks around here who know we have excesses in the system today that must be flushed out very soon before further expectation of continued inflation becomes a popular mindset and we have the risk of systemic structural inflation In my opinion, an overshoot is far less dangerous than not doing enough to body slam what is going on today. Central banker wishes for a soft landing may be possible but it is likely wishful thinking.

I've been saying for years to to tame the excesses, because I understand the excesses, and overreaction in the 70s & 80s, which is why I'm concerned about repeating the exact same mistakes.

I guess I'm at that wonderful age, were old people assume I don't have the experience or knowledge or exposure, and young people think I'm a boomer, who just think I don't "get it"

I think this attitude "There is virtually no fear of an 'overshoot' in either case given the size of the current gap." is exactly the problem I see. You don't even seem to accept that there is a problem there.
When you assume something isn't a problem, and overlook the risk is EXACTLY when you screw things up.

 

[AltaRed]

There is a lot of space between where we are and overshoot. I repeat - there is no fear of an overshoot especially since a Deputy Governor of BoC just said the rate and ultimate size of interest rate increases will be tempered by BoC wringing their hands over how the housing market corrects. IOW, taming inflation will ultimately take the back seat to an excessive concern of increased mortgage rates. The wimps are scared to death of overreach. Your fear is misplaced.

 

[james4beach]

You were not likely around in the '70s and '80s when excesses just about collapsed the system. Trust some of the older and wiser folks around here who know we have excesses in the system today that must be flushed out very soon before further expectation of continued inflation becomes a popular mindset

I'm with you, and I really hope the central banks don't drop the ball on inflation.

The thing that scares me the most right now is that the BoC and Fed will "chicken out" once asset prices and mortgage rates start to hurt. If they give up on rate hikes, inflation could become disastrous.

 

[londoncalling]

They are already starting to hint at lesser increases going forward and inflation is nowhere near target. I guess CPI is not an issue if you don't need to use transportation, eat, or have a roof over your head. Keeping things will require some nimble moves but I think it is doable. I don't expect the FED and BoC to be so forward in hinting where rates are headed as they were with the most recent announcements. If they are unable to curb inflation it will be tempered by changes in consumer behaviour. Perhaps people will realize that certain produce is just not affordable at certain times of the year. Eating more locally and seasonally may return if it is the more affordable option. New phone and car every year or two? Not a necessity. Inflation has been hurting the poor for quite some time but now the middle class is aware that this may affect them too. Will this impact business? Absolutely. I think the more immediate threat is escalating input costs. I truly hope the bulk of inflation will dissipate when the transitory supply chain issues are resolved. end rant

 

[Gator13]

OPEC increasing output would be a step in the right direction to taming inflation. It would help at the pumps and help reduce the cost to transport goods by truck, rail & airline not to mention all the other industries that are sensitive to fuel costs.

 

[m3s]

Live view of the central banksters fighting inflation

 

[MrMatt]

I'm with you, and I really hope the central banks don't drop the ball on inflation.

The thing that scares me the most right now is that the BoC and Fed will "chicken out" once asset prices and mortgage rates start to hurt. If they give up on rate hikes, inflation could become disastrous.

I think they kept things too low, and were way late to hike, and combined with the perception that they were loathe to increase rates caused massive overleveraging across the economy.

I think it will be nearly impossible to time the ending properly. Based on their failure by overstimulating, I think they're going to mess it up again, because they mess it up every time. Some posters have complained that their overstimulation was basically a handout to investors and businesses.

I also think that the various factors will create a problem, I am concerned they'll hike rates enough to cause chaos in one market, but not enough to fix the problems in others. Playing with interest rates is a very broad tool, it's really not nuanced enough to effectively fix the problems, but the artificial manipulations are definately capable of causing problems.

When I say markets, they might slow housing prices enough to cause trouble, but not address inflation in other areas. There is also a risk that if investors see a fall in RE values, they'll leave the market irrespective of the mortgage rates, and then the BoC will pause the hikes too early.

Secondly higher rates will really hurt some people, and there will be political pressure to "do something", that something is basically give them so much money that it increases inflation pressure again.


Basically they screw up monetary policy time and time again, I think they'll screw it up this time, because they haven't shown themselves to be particularly competent/capable.

 

[MrMatt]

FWIW, I'm STILL enjoying these highs