whitehorse real estate,real estate in whitehorse,whitehorse houses for sale whitehorse real estate,real estate in whitehorse,whitehorse houses for sale whitehorse real estate,real estate in whitehorse,whitehorse houses for sale whitehorse real estate,real estate in whitehorse,whitehorse houses for sale

Why it’s tougher than ever to predict where interest rates will go next:

Wrapping up his speech to a crowd at Western University in late February, Bank of Canada governor Stephen Poloz said that “it’s an exciting time to be a central banker.” That may go down as the understatement of the year.
All eyes will be on Poloz Wednesday as the Bank of Canada makes its next interest rate announcement. Economists widely expect the Bank to maintain the overnight rate at 0.75%, with a slim chance of another cut. But really, who knows?

As important as interest rate policy is to anyone investing in the stock market, buying a home or borrowing to invest in a business, it is harder than ever to handicap where rates are headed. So if the job of the central banker is exciting, it is also supremely visible.

In this spotlight, Poloz has been the target of some pretty sharp criticism over what some see as mixed signals. First there was the surprise 25-basis-point cut, to 0.75%, in January. As oil prices stayed in the tank and the economic data continued in the doldrums, markets widely expected another slash of the overnight rate in March.
But in comments made in late February, Poloz signalled that it may not happen, and it didn’t. When the March rate announcement turned out to be a non-event, ten-year government bond yields, which reflect investors’ expectations of where rates are headed, recovered briefly.

Then they declined again amid still-bad economic news and Poloz’s advance characterization of January GDP growth as “atrocious.” Turned out GDP shrank in January, though by less than expected. Not-completely-awful job numbers last week and stability in oil prices has reinforced the consensus that the Bank will hold firm on Wednesday.
We’ll see.

While all this has been going on, Poloz has elliptically responded to his critics, who have suggested that the on-again, off-again signals from the Bank undermine its credibility.
In a speech in London (the British one) on March 26, Poloz said that long-term inflation expectations and “the inflation outcomes that support them” are the standards by which central banks should be judged. Since long-term inflation expectations in Canada are near the Bank of Canada’s 2% target, Poloz said, the Bank’s credibility is “intact.”
Elsewhere, however, he has suggested that meeting inflation targets isn’t the central bank’s be-all-and-end all. In a speech in London (the British one) on March 26, Poloz said that long-term inflation expectations and “the inflation outcomes that support them” are the standards by which central banks should be judged. Since long-term inflation expectations in Canada are near the Bank of Canada’s 2% target, Poloz said, the Bank’s credibility is “intact.”

Elsewhere, however, he has suggested that meeting inflation targets isn’t the central bank’s be-all-and-end all. In that February speech in the other London (Ontario’s), he said that the experience of the mid-2000s showed that “low nominal interest rates that came with low and stable inflation led investors to increase leverage and risk tolerance in a desire to boost their returns… We learned that these vulnerabilities can build up over time, raising the risk of a crisis even while the economy looks to be safe and sound.” Central banking, he said, “needs to be reinvented” and needs “to take account of a wider range of economic and financial consequences while targeting low inflation.”

As for anyone frustrated by the lack of consistency – well, that’s the new normal. Poloz has characterized forward guidance in interest rate policy, as practised by his predecessor Mark Carney, as unconventional. As central banks move back to normal (i.e. less stimulus), the need to reduce the term premia through explicit guidance is less pressing than it was in the wake of the Great Recession. So as the economy improves, monetary policy will be less predictable.

But what’s normal? Certainly there was little normal about the January rate cut. You could also argue that there’s nothing normal about the economic situation we’re in now – where growth and inflation remain low despite years of low interest rates.

Maybe it’s not fair to accuse the central bank of sending out mixed signals, but those signals have certainly been complicated. And it’s fair to wonder whether we really are getting back to “normal,” or whatever we used to think normal was, in the economy or in monetary policy.
If Wednesday’s rate announcement comes in as expected, maybe it will prove that we’re getting better at reading the central bank’s signs.

Or, you know, maybe not.

Joe Chidley