It was fun while it lasted, but Bank of Canada (BoC) Governor Tiff Macklem may wrap up his “conditional pause” era sooner than we all expected.
Driving the news: Several big-name economists at Scotiabank, Capital Economics, and CitiGroup predict that the BoC will hike interest rates by a quarter-point at its June 7 meeting—breaking with a consensus view that a pause would be maintained at 4.5%.
- Those projections track with moves in the bond market, which is pricing in a roughly one-in-three chance of a hike in June, up sharply from last month.
Why it’s happening: Last week’s inflation report was no bueno, showing price growth unexpectedly accelerating to 4.4% in April (a far cry from the BoC's 2% target).
Why it matters: Another rate hike will make mortgages even more expensive. And in a country that’s loaded up with mortgage debt like Canada, that's creating a “ticking time bomb” in the economy, according to a recent report by Desjardins.
- Borrowers will face steep increases in monthly payments as their mortgages come up for renewal (up to 40% in some cases).
- That will force people to spend more money servicing their debt and less buying things, potentially causing a recession.
Yes, but: If the US debt ceiling issue isn’t resolved, forget everything you just read and throw all forecasts out the window, because it’ll be a totally different economic reality.