On a day-to-day basis, Canadian consumers are struggling with higher debt payments. They have less money to spend and are keeping discretionary costs to a minimum, which is hurting businesses. Anecdotally, I’m seeing people tap into their savings to pay down their high-interest debt. This will only get worse if the BoC continues to raise rates and we enter into a recession. If that were to happen, and we go from an interest-rate hiking cycle to an interest-rate cutting cycle, whatever credibility the BoC has will go out the window.
The Canadian central bank has acknowledged that while its priority is inflation—even at the risk of an economic slowdown—it recognizes it’s walking a fine line. For myself, I’d rather have 3% inflation with close to full employment than fight tooth and nail to get inflation down to 2% and put people out of work. To me, that tradeoff is not worth it.
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Canadian CPI/Core CPI by Month
January 2023
February 2023
March 2023
April 2023
May 2023
June 2023
July 2023
August 2023
CPI 5.9%Core CPI 4.9%
CPI 5.2%Core CPI 4.8%
CPI 4.3%Core CPI 4.5%
CPI 4.4%Core CPI 4.4%
CPI 3.4%Core CPI 4.0%
CPI 2.8%Core CPI 3.5%
CPI 3.3%Core CPI 3.4%
CPI 4.0%Core CPI 3.6%
U.S. CPI/Core CPI by Month
February 2023
March 2023
April 2023
May 2023
June 2023
July 2023
August 2023
CPI 6.0%Core CPI 5.5%
CPI 5.0%Core CPI 5.6%
CPI 4.9%Core CPI 5.5%
CPI 4.0%Core CPI 5.3%
CPI 3.0%Core CPI 4.8%
CPI 3.2%Core CPI 4.7%
CPI 3.7%Core CPI 4.3%
The U.S. Federal Reserve decides not to raise interest rates
I was always of the view that the U.S. Federal Reserve would stand pat and not raise interest rates this month. And that’s what happened. At this point, I think there’s less than a 50% chance it will raise them at its next meeting in November. I’m not alone. Many economists, analysts and investors believe this will be the case.
For his part, Federal Reserve Board Chair Jerome Powell’s tone remains hawkish, encouraging people to continue to spend conservatively. He is unwavering in his commitment to lowering inflation to 2%.
What does this mean for the stock market?
Not much, as large publicly listed companies are better equipped to handle a slowing economy than smaller companies. My worry today is for the small businesses that simply don’t have the resources to invest in technologies, like artificial intelligence (AI), which can help them drive efficiencies and grow. But, these aren’t the companies listed on stock exchanges.
For investors, this is still a good time to buy stocks. The S&P 500 is up 16% year to date even with slower growth. While there is still talk of a recession, it hasn’t happened yet. In fact, that talk of a recession has been pushed further out. North American investors, particularly those invested in U.S. stocks, have fared well.