The Bank of Canada is likely to hike its key overnight rate by half a percentage point on Wednesday, the Conference Board of Canada’s chief economist says, as the think tank’s economic forecast predicts home prices could start to drop next year.
Pedro Antunes tells Global News he expects the central bank to double its key overnight rate to one per cent at its announcement on Wednesday with an “oversized” increase of 50 basis points.
He joins the growing chorus of economists and market forecasters who are now widely expecting an interest rate hike of half a percentage point, the first since May 2000.
Back then, the nominal neutral rate — the level of interest that allows full productivity and keeps inflation on target — was around five per cent. Today, the Bank of Canada estimates the nominal neutral rate to be between 1.75 per cent and 2.75 per cent.
“A 50 (basis point) hike will do a lot more to cool the economy down today than it did back then,” said Desjardins’ head of macro strategy, Royce Mendes, in a note.
Mendes also says that the Bank of Canada will likely slow the pace of its monetary policy tightening after April and expects “further rate hikes to come in measured steps.”
“That would leave the overnight rate at 2.00 per cent at the end of the year,” he said.
Meanwhile, TD’s chief Canada strategist, Andrew Kelvin, expects the central bank to lift the overnight rate to 2.50 per cent by the end of the year.
Antunes says the move would follow similar rumblings from the U.S. Federal Reserve about a 50-basis-point hike as central banks around the world attempt to get global inflation under control.
Antunes spoke to Global News Tuesday following the release of the Conference Board of Canada’s latest economic forecast in a report titled “Normalcy Out the Window.”
The combination of the war in Ukraine, COVID-19 uncertainty, rising interest rates and rampant inflation has made the latest board’s latest forecasts the most complex Antunes has seen in his career.
“As Yogi Berra once said, the future ain’t what it used to be,” he says.
“I’ve been in this business of forecasting for many years now and I can’t think of another time when there’s been just so much chaos going on, really, to try and get a handle on where we think the economy is going.”
Economic growth could slow in 2023
For instance, the Conference Board report notes there’s “considerable risk” around Russia’s invasion of Ukraine, which “destabilizes a world that had been hoping for an improvement in the COVID-19 story.”
But despite the war putting inflationary pressures on food and gasoline prices, Canada’s economy stands to gain from the ongoing war as sharp rises in commodity markets will be a “massive boon” for the country’s agricultural and energy producers, Antunes says.
6:05 How war in Ukraine is threatening the global food crisis
How war in Ukraine is threatening the global food crisis – Apr 5, 2022
Overall, the Conference Board expects Canada’s gross domestic product to grow by four per cent in 2022 before falling off slightly with a 3.3 per cent increase in 2023.
Though the board notes that many Canadians racked up significant savings over the past two years of the COVID-19 pandemic, surging gasoline prices could dampen some of the fervent spending this summer.
Demand for road trips, for example, appears to have “abated,” Antunes says, as motorists feel the pinch at the pumps.
While it could take up to 18 months before higher interest rates have a material impact on prices and Canada’s economy, Antunes says the central bank will need to deliver a higher rate hike on Wednesday to help get consumer and business expectations back under control.
When inflation expectations become unmoored, the risk is that wages will spike in response, putting pressure on businesses to then hike prices. That endless cycle of inflation and wage growth is what the bank is trying to avoid, Antunes says, by sending a message to the public that it will act to tamp down on inflation.
“It’s really trying to maintain its credibility that inflation will be contained and the bank has the tools and the wherewithal to do that,” he says.
“It’s a real challenge for the bank just to make sure that people continue to believe that we are going to see inflation return back to that two per cent target.”
But the Conference Board report also warns that Canadians with high debt levels could start to feel the pinch if the central bank enters a more aggressive monetary tightening cycle. Antunes notes many Canadians took their pandemic higher savings and put them into the housing market, making these new mortgage holders vulnerable to rate hikes.
“With the nominal household debt-to-disposable income ratio reaching a record level in the fourth quarter of 2021, higher interest rates could spell trouble for heavily indebted Canadians,” the report reads.
“We still expect the consumer to lead the way for the Canadian economy, but the combination of rising inflation and higher interest rates could make it a bumpy ride.”
How will the housing market react to rising rates?
The Conference Board report also suggests that Canada’s hot housing market could be cooling, and potentially heading for a correction.
The think tank points to rising interest rates, policy adjustments from the feds and other levels of government and changes in consumer attitudes as taking some of the gas out of the housing market.
4:17 Will interest rate changes temper the housing market?
Will interest rate changes temper the housing market? – Apr 4, 2022
“Following years of outsized gains, we think this could finally be the year when Canada’s housing markets slow,” the report reads.
Following 22.5 per cent growth in the aggregate resale home price last year, the Conference Board is projecting eight per cent growth in resale prices in 2022 as cooling takes effect in the second half of the year.
The board goes on to project a six per cent price drop in 2023, with the risk of a “sharper correction” if real estate investors sell their units into an easing market.
BMO senior economist Robert Kavcic told Global News in late March that a series of rate hikes, combined with government measures aimed at cooling the housing market, could see home prices could drop as much as 10 per cent over the next couple years.
He called rising interest rates “the single biggest measure we can take here to cool down the pace of home price growth and inflation more broadly.”
One of the biggest factors that could play into housing affordability is the anticipation of more supply coming onto the market, Antunes says.
The report calls builders’ efforts to ramp up the supply of housing starts a “Herculean effort” with a record number of housing starts recorded in November 2021 as the industry grappled with supply chain constraints and labour shortages.
The federal government also stated its ambitions to double the annual number of new units in Canada to 400,000 per year over the next decade.
“A lot of that has been held up. It’s been difficult to get the person power in the construction industry to finish a lot of those projects. But it is coming,” he says.
The Conference Board report’s title notwithstanding, Antunes does think there are signs of the housing market rebalancing after two years of rampant growth.
“With interest rates coming up, with normalcy coming back to the economy, perhaps demand easing up as well and helping the market kind of rebalance to something more normal,” he says.
“We just think it’s been way too frothy over the last two years.”
— with files from the Canadian Press
2:16 Federal housing money may not cool red-hot market
CHARLESTON, W.Va. (AP) — A linebacker at Division II West Virginia State was fatally shot during what the university said Thursday is being investigated by police as a home invasion.
The body of Jyilek Zyiare Harrington, 21, of Charlotte, North Carolina, was found inside an apartment Wednesday night in Charleston, police Lt. Tony Hazelett said in a statement.
Hazelett said several gunshots were fired during a disturbance in a hallway and inside the apartment. The statement said Harrington had multiple gunshot wounds and was pronounced dead at the scene. Police said they had no information on a possible suspect.
West Virginia State said counselors were available to students and faculty on campus.
“Our thoughts and prayers are with Jyilek’s family as they mourn the loss of this incredible young man,” West Virginia State President Ericke S. Cage said in a letter to students and faculty.
Harrington, a senior, had eight total tackles, including a sack, in a 27-24 win at Barton College last week.
“Jyilek truly embodied what it means to be a student-athlete and was a leader not only on campus but in the community,” West Virginia State Vice President of Intercollegiate Athletics Nate Burton said. “Jyilek was a young man that, during Christmas, would create a GoFundMe to help less fortunate families.”
Burton said donations to a fund established by the athletic department in Harrington’s memory will be distributed to an organization in Charlotte to continue his charity work.
West Virginia State’s home opener against Carson-Newman, originally scheduled for Thursday night, has been rescheduled to Friday, and a private vigil involving both teams was set for Thursday night. Harrington previously attended Carson-Newman, where he made seven tackles in six games last season. He began his college career at Division II Erskine College.
“Carson-Newman joins West Virginia State in mourning the untimely passing of former student-athlete Jyilek Harrington,” Carson-Newman Vice President of Athletics Matt Pope said in a statement. “The Harrington family and the Yellow Jackets’ campus community is in our prayers. News like this is sad to hear anytime, but today it feels worse with two teams who knew him coming together to play.”
DETROIT (AP) — Joe Schmidt, the Hall of Fame linebacker who helped the Detroit Lions win NFL championships in 1953 and 1957 and later coached the team, has died. He was 92.
The Lions said family informed the team Schmidt died Wednesday. A cause of death was not provided.
One of pro football’s first great middle linebackers, Schmidt played his entire NFL career with the Lions from 1953-65. An eight-time All-Pro, he was enshrined into the Pro Football Hall of Fame in 1973 and the college football version in 2000.
“Joe likes to say that at one point in his career, he was 6-3, but he had tackled so many fullbacks that it drove his neck into his shoulders and now he is 6-foot,” said the late Lions owner William Clay Ford, Schmidt’s presenter at his Hall of Fame induction in 1973. “At any rate, he was listed at 6-feet and as I say was marginal for that position. There are, however, qualities that certainly scouts or anybody who is drafting a ballplayer cannot measure.”
Born in Pittsburgh, Schmidt played college football in his hometown at Pitt, beginning his stint there as a fullback and guard before coach Len Casanova switched him to linebacker.
“Pitt provided me with the opportunity to do what I’ve wanted to do, and further myself through my athletic abilities,” Schmidt said. “Everything I have stemmed from that opportunity.”
Schmidt dealt with injuries throughout his college career and was drafted by the Lions in the seventh round in 1953. As defenses evolved in that era, Schmidt’s speed, savvy and tackling ability made him a valuable part of some of the franchise’s greatest teams.
Schmidt was elected to the Pro Bowl 10 straight years from 1955-64, and after his arrival, the Lions won the last two of their three NFL titles in the 1950s.
In a 1957 playoff game at San Francisco, the Lions trailed 27-7 in the third quarter before rallying to win 31-27. That was the NFL’s largest comeback in postseason history until Buffalo rallied from a 32-point deficit to beat Houston in 1993.
“We just decided to go after them, blitz them almost every down,” Schmidt recalled. “We had nothing to lose. When you’re up against it, you let both barrels fly.”
Schmidt became an assistant coach after wrapping up his career as a player. He was Detroit’s head coach from 1967-72, going 43-35-7.
Schmidt was part of the NFL’s All-Time Team revealed in 2019 to celebrate the league’s centennial season. Of course, he’d gone into the Hall of Fame 46 years earlier.
Not bad for an undersized seventh-round draft pick.
“It was a dream of mine to play football,” Schmidt told the Detroit Free Press in 2017. “I had so many people tell me that I was too small. That I couldn’t play. I had so many negative people say negative things about me … that it makes you feel good inside. I said, ‘OK, I’ll prove it to you.’”
VICTORIA – British Columbia’s Environment Assessment Office has fined Coastal GasLink Pipeline Ltd. $590,000 for “deficiencies” in the construction of its pipeline crossing the province.
The office says in a statement that 10 administrative penalties have been levied against the company for non-compliance with requirements of its environmental assessment certificate.
It says the fines come after problems with erosion and sediment control measures were identified by enforcement officers along the pipeline route across northern B.C. in April and May 2023.
The office says that the latest financial penalties reflect its escalation of enforcement due to repeated non-compliance of its requirements.
Four previous penalties have been issued for failing to control erosion and sediment valued at almost $800,000, while a fifth fine of $6,000 was handed out for providing false or misleading information.
The office says it prioritized its inspections along the 670-kilometre route by air and ground as a result of the continued concerns, leading to 59 warnings and 13 stop-work orders along the pipeline that has now been completed.
This report by The Canadian Press was first published Sept. 12, 2024.
