Tiff Macklem, the Bank of Canada governor, is becoming as well-known as a rockstar. We hang on to his every word, look for clues in the commentary and hope our economy is headed towards a recovery. Why? Because, for so many, our financial livelihood depends on it.
For the fourth consecutive rate announcement, the Bank of Canada did exactly what we expected it to do and left the bank rate unchanged at 5%. However, in the commentary, Macklem made a key point. “If the economy evolves broadly in line with the projection published, I expect future discussions will be about how long we maintain the policy rate at five percent,” Macklem said.
Economic Challenges and Uncertainties in Canada
Inflation has tamed and decelerated but has not yet hit the desired 2% target. Shelter costs are still high for renters and homeowners, healthcare costs continue to climb, and even areas such as car maintenance remain stubbornly high.
The job market has proven more resilient than anyone initially thought. Yet, the private sector has been scaling back on hiring for the past three months, our productivity levels are low, and without meaningful business investment in Canada, further job losses could be on the horizon. No one worries about paying their bills or debt levels when they have a job or money coming in, but things can quickly spiral out of control should the situation change.
We don’t know with certainty if our economy is headed toward a soft landing or a mild recession. And, while we focus on our current economic landscape, external wildcards are also worth considering. For example, escalations in the Middle East, mounting tension between China and Taiwan and the risk to trade pending the outcome of the upcoming US election.
Despite all this, there are still expectations for a rate cut in the spring, anywhere from 100 to 150 basis points. Will this materialize? Maybe. However, timing the real estate, stock, currency, and interest rate markets is a mug’s game.
Financial Planning and Strategies
A far more sensible approach is to set yourself up for success and control what you can in an environment where you feel you have no control.
- Begin by understanding your cash flow. How much money is coming in?
- Be transparent about your spending.
- Delay discretionary purchases you know you can’t afford.
- Don’t try to time the market. It is a mug’s game, and planning according to the current environment is far more prudent.
- Explore all of your funding options to free up some cash. These include a Home equity line of credit (HELOC), a CHIP Reverse Mortgage, downsizing your home, or taking money out of your investment portfolio. However, not your typical emergency plan or rainy day fund, all of these options can potentially increase your cash flow and improve your lifestyle.
- It is always a good time to ensure that your savings and investments align with your risk tolerance, time horizon, and asset allocation. Re-balancing can help lock in gains and protect investments.
A sage woman once told me, “Live your life in a financially responsible manner and let the economy catch up.” In other words, we control what we can control despite the economy, which is empowering.
Pattie – PLR@heb.ca