Possibility of Interest Rate Reduction by the Bank of Canada and the U.S. Federal Reserve This Week?
On July 30, 2022, the Bank of Canada and the United States Federal Reserve made significant decisions regarding their respective interest rates.
The Bank of Canada, in a move widely anticipated by experts, kept its key interest rate steady at 2.75%. This decision was made in light of the resilience shown by the Canadian economy despite the ongoing uncertainties induced by the U.S.-imposed trade tariffs and broader trade tensions.
In its announcement, the Bank of Canada cited that while U.S. tariffs and trade disputes created volatility and downside risks, Canada's economy had not sharply deteriorated. The Bank also noted that inflation showed stubborn underlying pressures. However, it flagged ongoing trade policy fluidity and noted some recent tariff stabilization and resilience in global economies.
Meanwhile, the Federal Reserve, in a similar vein, faced pressure from trade war uncertainties but kept rates steady to balance inflation control and economic growth. Economists largely ruled out cuts due to the broader cost-of-living and labor market conditions.
Both central banks' decisions reflected a cautious monetary stance amid geopolitical and trade tensions. They avoided monetary easing until clearer signals of economic weakening emerged.
The Bank of Canada's decision to maintain its interest rate has implications for clients with mortgages or variable rate mortgages, as changes in the Bank's lending policy can impact the expected costs for these clients. Similarly, the Federal Reserve's decision not to lower interest rates is significant, as interest rates set by central banks influence consumer costs for loans like auto loans and mortgages.
The Bank of Canada's monetary policy announcement is scheduled for 9:45 a.m. EDT, with a press conference shortly after at 10:30 a.m. EDT. The Federal Reserve will announce its monetary policy at 2 p.m. EDT on Wednesday, with a speech followed by a media question period at 2:30 p.m. EDT.
It is important to note that the Bank of Canada has lowered its interest rate since economic data showed inflation was within its target range, aiming for a "neutral" level. The overnight interest rate set by central banks serves as a base for commercial banks and lenders to build their own interest rates.
The prime mortgage rate of Canadian commercial banks like TD or CIBC is currently 4.95%, based on the Bank of Canada's overnight criteria.
References:
- Bank of Canada holds interest rate steady as trade tensions linger
- Fed holds rates steady, signals no imminent move to tighten policy
- Bank of Canada holds interest rate as trade tensions linger
- Bank of Canada holds interest rate amid trade tensions
- Bank of Canada holds interest rate as trade tensions linger
- The Bank of Canada decided to keep its interest rate steady, a move influenced by the ongoing trade tensions and their impact on the economy.
- The Federal Reserve maintained its interest rate in a bid to balance inflation control and economic growth, echoing concerns over trade war uncertainties and broader finance and business matters.
