They won't.And what if rates fall in a few months?
Taper tantrum scenario has played out a few times beforeUnder what scenario do you see rates falling in the near term? Not saying it can't happen, I just don't see how.
See what @m3s said.Under what scenario do you see rates falling in the near term? Not saying it can't happen, I just don't see how.
Ya you're right, it depends on what you do with the dividend. Bottom line is, even at 5% in this clown world I'm obligated to start locking in some decent rates. If they crash the economy/markets with higher rates, they could use that as an excuse to go back to zero rates or worse. They like to raise rates slowly but when there's a "crisis" they drop them fast.Not questioning your math that the 5% compounding in a 10 year GIC is like getting a 6.28% dividend. But I guess it depends on what you do with the dividend. If re-invested it can potentially beat the 5% compounding GIC.
Hey James, Thanks for that post. I don't disagree with pretty much everything you said.See what @m3s said.
I see many ways interest rates could fall (or QE could increase), both of which amount to the same kind of thing: more stimulus.
First thing that's guaranteed to happen is that investors and real estate investors are going to complain a lot. They're going to say the Fed has gone too far, is destroying prices and destroying the economy, and will push back. They will start begging and screaming to stop raising interest rates.
Average people may complain too. Both households and businesses rely on very low interest rates loans (lines of credit, business loans). These interest rates are going up dramatically and it's going to pinch many households and businesses. So I'm sure they will also beg and scream to stop raising interest rates.
Next is the possibility of a "market dislocation". Something in the financial markets could blow-up. For example, a crash in junk bonds, or maybe another crash in mortgage bonds. You can't ever predict what it's going to be, but when asset prices plummet, something can go severely wrong. If something blows up, then the central banks really could stop raising rates. They might even cut rates.
Another possibility is Trump. He's likely to win in 2024 and the last time he was in charge, he told the Federal Reserve to cut interest rates. He very directly interfered with Federal Reserve policy and he could easily do it again. Reducing interest rates is usually a crowd-pleaser as it's a way to juice up asset prices and the economy.
Trump is also unpredictable. He's mentally ill, so it's really hard to know what he may do. Push the Fed to raise rates? Lower rates? Who knows... a total wildcard.
Another way I see is that inflation could moderate. More supply from manufacturers, or maybe some resolution to the war, could alleviate rising prices. If inflation starts to level off and maybe looks like it's no longer running away, that changes the picture completely. At that point the central bank could stop aggressively hiking rates.
Interest rates continuing to rise for the next 10 years is likely, but not certain.
OK that's a good point, you're talking about the next 2-3 months. And I do agree that GIC rates will likely go higher in that time period.But the big caveat is that I'm considering what rates will do in the next 2-3 months before locking in any mid/longer term GIC's. Actually I really think we have at least 12 months with more increases.
Your post mostly relates to why rates could decrease in the longer term, that is longer than 2-3 months.
Yes. short term and central bank overnight rates are moving higher by direct action. However, longer term rates take their cue from market forces. For instance, last week the Fed raised their overnight rate by 0.75% and the market moved the rate on long bonds down. We are past the point in this tightening cycle when the curve is making a parallel shift. It is now changing slope and shape. So in other words you may wish to reconsider your forecast and focus specifically on the expected evolution of the rate at the term you are waiting to purchase.Hey James, Thanks for that post. I don't disagree with pretty much everything you said.
But the big caveat is that I'm considering what rates will do in the next 2-3 months before locking in any mid/longer term GIC's. Actually I really think we have at least 12 months with more increases.
Steinbach now offering Limited-time GIC special 17-month: 3.80% And Oaken at 5% for 5 year.OK that's a good point, you're talking about the next 2-3 months. And I do agree that GIC rates will likely go higher in that time period.
My middle name is Karnac. Maybe dating myself but loved that Carson bit.Timing interest rates is a dangerous game.
How do you know interest rates are going higher? Maybe they will go lower.
It could have peaked but hard to say how long it stays above 3%IMO, it's gonna take more than 2-3 months to get inflation below 3%. Probably more like a year or longer. Assuming they only hike by .25% at each meeting, that suggests a rate peaking near 3.5% by this time next year. It's probably more likely to be 4-4.5% though. I could be wrong and they stop hiking earlier, but that would further damage their already tarnished credibility.