Market Commentary - Dec 22, 2015
Market Commentary
We have "lift-off".
Despite months and months and months of anticipation, when the U.S. Fed finally pulled the trigger on a rate increase last week nobody really seemed to care very much. The quarter-point boost puts the benchmark rate in the U.S. at 0.5%. So now what?
For us in Canada the implications are broad but not very deep. The most noticeable effect is on the value of the Loonie which has fallen to 11 year lows. For the average person that translates into higher costs when shopping or travelling in the U.S.
Canadian interest rates which have a history of moving in step with American rates are not likely to do so this time. The Canadian economy is not deemed robust enough, right now, to tolerate interest rate hikes.
Eventually fixed-rate mortgages will likely increase. Fixed rates are tied to long-term Canadian bonds which are, ultimately, tied to the U.S. dollar. Fixed-rate mortgage interest has already climbed in Canada, but that likely has more to do with fee changes at CMHC, than the increase in the U.S. Fed rate.
