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Big interest rate cuts ahead from the Bank of Canada if 2001 is any indication

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They say that actions speak louder than words, and this definitely applies when it comes to the Bank of Canada.

The central bank now forecasts the consumer price inflation (CPI) index will return to two per cent in mid-2025. If this two-year prediction causes you concern that policymakers won’t be lowering rates for two years, fear not. It is quite amazing that they feel confident in making a prediction for two years out. Keep in mind that only 18 months ago, the overnight rate was still 0.25 per cent.

Two years is forever in terms of economic predictions, and, as a result, we should assume virtually nothing based on the prediction of a two-per-cent CPI by mid-2025.

To show what I mean, let’s take a closer look at the last time interest rates were this high, which was in 2001.

As 2000 turned to 2001, the Bank of Canada’s rate was at six per cent. It is 5.25 per cent today. Back then, real gross domestic product (GDP) was growing by 4.7 per cent and employment was rising by 2.6 per cent. Higher energy prices were boosting exports. There was growth in employment and wages and, together with tax cuts, this grew consumer spending.

To help deal with an overheating economy, the Bank of Canada began raising rates, starting in 1999, and peaking with a 50-basis-point hike in May 2000 to get to six per cent.

However, all was not rosy. The tech bubble burst in early 2000, and the end-of-year forecasts for 2001 were not great. GDP growth was expected to slip to between two and three per cent, according to private-sector forecasts. Among the concerns were the effects of previous increases in interest rates, higher energy prices and overall weakening confidence.

As it turned out, Canada’s GDP dropped all the way to 1.79 per cent in 2001 from 5.18 per cent in 2000. Unemployment was at 6.83 per cent in 2000 (much higher than today’s rates), but went up to 7.22 per cent in 2001 and 7.66 per cent in 2002.

The Bank of Canada kept its rate at six per cent throughout the second half of 2000, but as things weakened in the economy, it felt it was time to cut. Policymakers cut the rate by 25 bps in January 2001, and by the time they were done cutting one year later, the rate was 2.25 per cent, a full 375-basis-point cut in one year.

Did the Bank of Canada predict these moves in May 2000? No, it did not. At the time, it was clearly worried about higher inflation.

The Bank of Canada building in Ottawa.
The Bank of Canada building in Ottawa. Photo by Adrian Wyld/The Canadian Press

The May 2000 Bank of Canada Monetary Policy Report said: “ … (we see) several key areas of uncertainty for the conduct of Canadian monetary policy in the period ahead. First, the momentum of demand in Canada from both international and domestic sources could continue to outpace expectations. Second, a possible buildup of inflationary pressures in the United States could have implications for Canada. Third, the capacity of the Canadian economy to produce goods and services without adding to inflationary pressures may be higher than previously thought.”

This is not a knock on the Bank of Canada’s view from May 2000, although it might be instructive as to why you might not want to make a two-year prediction on when CPI will be back to two per cent.

There was a clear slowdown ahead in the economy, but things got much worse when the completely unpredictable 9/11 attacks in the United States took place. That helped push a meaningful slowdown in 2001 to a much worse place.

Clearly, there are many differences between 2001 and today. What led to the run-up in interest rates in 1999 and 2000 was different from the reasons for the run-up today. But some of the economic similarities are meaningful.

The monthly all-in CPI was just 0.66 per cent in January 1999. As the economy improved, the CPI rose to 2.63 per cent by December 1999, and was at 3.2 per cent in December 2000. By this time, the Bank of Canada had raised its rate to six per cent in an effort to calm inflation.

Whatever forced the economy to slow down, the impact was dramatic. The CPI was down to 0.62 per cent by November 2001. Now the central bank was in catch-up mode to try to spur the economy, so it quickly lowered the rate, eventually stopping declines in January 2002, when it was down to 2.25 per cent.

Is this instructive for what the Bank of Canada will do next with interest rates? I think so. The key takeaway for me is that things can quickly change.

Eighteen months ago, we had super low interest rates in Canada. Today, not so much. In late 2000, the rate was six per cent. By January 2002, it was 2.25 per cent.

Over the past 30 years, the Bank of Canada has raised rates ranging from 1.25 to 3.2 percentage points on six different occasions (prior to the significant current rate hikes). The one thing they all had in common was that it didn’t take long for each of them to be followed by a period of declining interest rates, ranging from 1.25 to 5.125 percentage points.

As the band Blood, Sweat and Tears famously sang back in 1968, “What goes up, must come down.” Get ready to see actions speak louder than words over the coming year on interest rates.

Ted Rechtshaffen, MBA, CFP, CIM, is president, portfolio manager and financial planner at TriDelta Financial, a boutique wealth management firm focusing on investment counselling and high-net-worth financial planning. You can contact him directly at tedr@tridelta.ca.

 

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Canada’s Denis Shapovalov wins Belgrade Open for his second ATP Tour title

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BELGRADE, Serbia – Canada’s Denis Shapovalov is back in the winner’s circle.

The 25-year-old Shapovalov beat Serbia’s Hamad Medjedovic 6-4, 6-4 in the Belgrade Open final on Saturday.

It’s Shapovalov’s second ATP Tour title after winning the Stockholm Open in 2019. He is the first Canadian to win an ATP Tour-level title this season.

His last appearance in a tournament final was in Vienna in 2022.

Shapovalov missed the second half of last season due to injury and spent most of this year regaining his best level of play.

He came through qualifying in Belgrade and dropped just one set on his way to winning the trophy.

Shapovalov’s best results this season were at ATP 500 events in Washington and Basel, where he reached the quarterfinals.

Medjedovic was playing in his first-ever ATP Tour final.

The 21-year-old, who won the Next Gen ATP Finals presented by PIF title last year, ends 2024 holding a 9-8 tour-level record on the season.

This report by The Canadian Press was first published Nov. 9, 2024.

The Canadian Press. All rights reserved.



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Talks to resume in B.C. port dispute in bid to end multi-day lockout

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VANCOUVER – Contract negotiations resume today in Vancouver in a labour dispute that has paralyzed container cargo shipping at British Columbia’s ports since Monday.

The BC Maritime Employers Association and International Longshore and Warehouse Union Local 514 are scheduled to meet for the next three days in mediated talks to try to break a deadlock in negotiations.

The union, which represents more than 700 longshore supervisors at ports, including Vancouver, Prince Rupert and Nanaimo, has been without a contract since March last year.

The latest talks come after employers locked out workers in response to what it said was “strike activity” by union members.

The start of the lockout was then followed by several days of no engagement between the two parties, prompting federal Labour Minister Steven MacKinnon to speak with leaders on both sides, asking them to restart talks.

MacKinnon had said that the talks were “progressing at an insufficient pace, indicating a concerning absence of urgency from the parties involved” — a sentiment echoed by several business groups across Canada.

In a joint letter, more than 100 organizations, including the Canadian Chamber of Commerce, Business Council of Canada and associations representing industries from automotive and fertilizer to retail and mining, urged the government to do whatever it takes to end the work stoppage.

“While we acknowledge efforts to continue with mediation, parties have not been able to come to a negotiated agreement,” the letter says. “So, the federal government must take decisive action, using every tool at its disposal to resolve this dispute and limit the damage caused by this disruption.

“We simply cannot afford to once again put Canadian businesses at risk, which in turn puts Canadian livelihoods at risk.”

In the meantime, the union says it has filed a complaint to the Canada Industrial Relations Board against the employers, alleging the association threatened to pull existing conditions out of the last contract in direct contact with its members.

“The BCMEA is trying to undermine the union by attempting to turn members against its democratically elected leadership and bargaining committee — despite the fact that the BCMEA knows full well we received a 96 per cent mandate to take job action if needed,” union president Frank Morena said in a statement.

The employers have responded by calling the complaint “another meritless claim,” adding the final offer to the union that includes a 19.2 per cent wage increase over a four-year term remains on the table.

“The final offer has been on the table for over a week and represents a fair and balanced proposal for employees, and if accepted would end this dispute,” the employers’ statement says. “The offer does not require any concessions from the union.”

The union says the offer does not address the key issue of staffing requirement at the terminals as the port introduces more automation to cargo loading and unloading, which could potentially require fewer workers to operate than older systems.

The Port of Vancouver is the largest in Canada and has seen a number of labour disruptions, including two instances involving the rail and grain storage sectors earlier this year.

A 13-day strike by another group of workers at the port last year resulted in the disruption of a significant amount of shipping and trade.

This report by The Canadian Press was first published Nov. 9, 2024.

The Canadian Press. All rights reserved.



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The Royal Canadian Legion turns to Amazon for annual poppy campaign boost

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The Royal Canadian Legion says a new partnership with e-commerce giant Amazon is helping boost its veterans’ fund, and will hopefully expand its donor base in the digital world.

Since the Oct. 25 launch of its Amazon.ca storefront, the legion says it has received nearly 10,000 orders for poppies.

Online shoppers can order lapel poppies on Amazon in exchange for donations or buy items such as “We Remember” lawn signs, Remembrance Day pins and other accessories, with all proceeds going to the legion’s Poppy Trust Fund for Canadian veterans and their families.

Nujma Bond, the legion’s national spokesperson, said the organization sees this move as keeping up with modern purchasing habits.

“As the world around us evolves we have been looking at different ways to distribute poppies and to make it easier for people to access them,” she said in an interview.

“This is definitely a way to reach a wider number of Canadians of all ages. And certainly younger Canadians are much more active on the web, on social media in general, so we’re also engaging in that way.”

Al Plume, a member of a legion branch in Trenton, Ont., said the online store can also help with outreach to veterans who are far from home.

“For veterans that are overseas and are away, (or) can’t get to a store they can order them online, it’s Amazon.” Plume said.

Plume spent 35 years in the military with the Royal Engineers, and retired eight years ago. He said making sure veterans are looked after is his passion.

“I’ve seen the struggles that our veterans have had with Veterans Affairs … and that’s why I got involved, with making sure that the people get to them and help the veterans with their paperwork.”

But the message about the Amazon storefront didn’t appear to reach all of the legion’s locations, with volunteers at Branch 179 on Vancouver’s Commercial Drive saying they hadn’t heard about the online push.

Holly Paddon, the branch’s poppy campaign co-ordinator and bartender, said the Amazon partnership never came up in meetings with other legion volunteers and officials.

“I work at the legion, I work with the Vancouver poppy office and I go to the meetings for the Vancouver poppy campaign — which includes all the legions in Vancouver — and not once has this been mentioned,” she said.

Paddon said the initiative is a great idea, but she would like to have known more about it.

The legion also sells a larger collection of items at poppystore.ca.

This report by The Canadian Press was first published Nov. 9, 2024.

The Canadian Press. All rights reserved.



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