Random Thoughts – 07

Looks like inflation is slowly slowing, but not yet at the desired level, with a similar situation in the US.  Interest rate increases are on “pause” here, and the US Fed is signaling it wants to raise some more before their pause.

If the US raises and we don’t, it puts (additional) downward pressure on the Canadian dollar, making everything we buy from the US more expensive – causing Canadian inflation.

If we raise to keep pace with the Fed and support our dollar, then we risk throwing our economy into recession, or a deeper one than might otherwise happen.

The recent collapse of SVB Bank and Signature Bank last week was caused in large part by the drop in bond prices over the last year.  This drop was caused by sharp interest rate increases.

If the Fed raises rates some more, will they be endangering additional banks?

Rock, meet hard place.

Alain Quennec

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