Will The Bank Of Canada’s Interest Rate Hikes Affect Your Portfolio Here in the United States?

With our Federal Reserve raising short-term interest rates at a pace last seen in 1994 in order to fight inflation, one might wonder why an investor would ever pay attention to what the Bank of Canada is doing with its own interest rate policy.

Short-term Interest Rates:

With our Federal Reserve raising short-term interest rates at a pace last seen in 1994 in order to fight inflation, one might wonder why would an investor ever pay attention to what the Bank of Canada is doing with its own interest rate policy.

Oh, Canada, what can we learn from you?

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And this is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” for your money. This week, given we are recording this segment in advance of our own Federal Reserves December policy meeting this week, we are discussing if we can make anything by what other foreign Central Banks are doing.

First off, please remember making real economic forecasts for our economy is ripe with errors.

As much as the folks on TV and in colleges throughout the Ivy league would like you to believe otherwise, the study of Economics is an art, it is NOT a science. There are no set-in-stone rules in real-world economics like there are in the classroom. Case in point, I want to take you back to almost exactly one year ago. Back then, the majority of Federal Reserve members here in the USA saw three interest rate increases in 2022.

According to the central bank’s so-called dot plot, the Fed would raise rates three times in 2022 to 75 basis points to 1%. Of course, what has really happened this year? Including today, our Fed has raised interest rates seven times, including three straight 75 basis point moves, and what I am assuming was 50 bps today. Our Fed’s target now sits at 4.25-4.5%. That’s 4-5x their own forecast 12 months ago.

This has pushed borrowing costs to a new high dating back to 2008. Here are our Fed’s moves this year. So why do we care about Canada’s Central Bank moves? Because year to date, they have moved earlier and more forcibly than our Federal reserve. This includes a 100 basis point increase last July.

What’s interesting is early last week, the Bank of Canada raised its overnight rate by 50 bps to 4.25%. That was their seventh consecutive hike which brought their 2022 total hikes to 400 basis points, now sitting at 4.25%. More importantly, it might have been their messaging on future interest rate moves. Their tone there was definitely on the dovish side.

They dropped any suggestion that rates needed to go higher than 4.25%. In fact, the Bank of Canada indicated that their early December move could be the last hike in this cycle, depending on the data. Would this be a big deal if December’s global Central bank hikes turned out to be “it” for the cycle?

For sure! Here’s a chart from Merrill Lynch showing the average stock return post-Fed hiking. The average 12-month index return has been +14%, with a high of +40% in the early ’80s and a low in the 1969-70 recession of -11%. The final countdown for interest rate increases? Let’s hope we are almost there or very close.

Are you trying to meet your needs or your greed’s in retirement? Give us a call here and schedule an initial consultation with an Oak Harvest Advisor. We will sit down with you and help you and your family do the math to figure out if you will be able to meet your retirement goals and needs.

At Oak harvest, we think our clients are best served by us helping them plan for their future needs instead of focusing on the past. The future is always uncertain, and that’s why our advisors and retirement planning teams plan for your retirement needs first and your greed second.

Give us a call to speak to an advisor, and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at (877) 896-0040, and schedule an advisor consultation.

We are here to help you on your financial journey into and through your retirement years.

– I’m Chris Perras and from everyone here at Oak Harvest, have a blessed week.