NEWSLETTER - Market Insights - June 10, 2024

Central Bank Pivots to Lower Interest Rates

Source: Tradingview.com

• After almost 3 years of rising interest rates, Bank of Canada leads the G7 to cut overnight interest rates by 0.25% to 4.75%(1). The ECB has followed suit and reduced its interest rate as well.  Both of these central banks did not commit to further rate cuts, nor the timing or potential path of further rate cuts.  

• Ironically, inflation is running hot over the 2%(2) target rate in Canada and the US.  Employment markets continues to be surprisingly strong, government stimulus is running at record levels and wage growth in the US is exceeding 4%(3).  

• Meanwhile, the Gov’t of Canada 2 year bonds have declined from a cycle high of ~5% to 4% at the time of writing. As shown in the chart below, interest rates bounced from generational lows in 2021.  Pre-Great Financial Crisis and Covid Canadian interest rates were in the 2.5% to 4% range…  are we potentially back in that range ? 

  
  (1) www.bankofcanada.ca
  (2) www.bankofcanada.ca
  (3) https://www.bls.gov