How The Economy Maintains Order & Balance

This week's episode is all about how the economy maintains good order and balance. On Wednesday, the Bank of Canada increased the overnight rate from 0.25% to 0.50%, the first rate increase since 2018. How does this impact inflation? How does it impact the Canadian people? Have a listen to the episode to find out!

Here is what you can take away from this episode:

1. Will this rate hike solve our inflation problems? Probably not.

When interest rates increase, the impact that has on an economy isn't realized for 12 - 18 months. Consumers were so tight for cash during COVID though, and many of them still are, that this was not a possibility last year. The Bank of Canada will spend the next few years hiking interest rates at a steady clip to see where the proper balance is of fighting inflation fears vs. those of a bear market.

2. Energy policy has a huge effect on foreign policy.

Energy is a valuable resource. Every country has a vested interest in it's cost and accessibility. Some countries are mass producers of energy, while others rely on importing it to keep their economy afloat. When inflation leads to a skyrocketing cost of energy, countries pay attention.

3. We STILL love the variable rate.

The fixed rate has been pumped up by talks of 6, maybe even 8 interest rate hikes in 2022, so if the year continues and we find we aren't on pace to reach those marks, the fixed rate should come back down a bit. The variable rate is still at such a huge discount to prime, so we feel that if you are okay with taking a bit of risk, the variable rate looks really good. 

 

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0:00 - Intro
1:18 - Marcus’ shirt
4:03 - Bank of Canada increased interest rates this week by 25 bps, the Federal Reserve in the US may do so shortly.
6:02 - Is inflation a result of shipping companies increasing costs during Covid?
8:23 - Increasing the overnight rate won’t help fight our rapidly increasing costs, only takes more out of people’s wallets.
10:37 - Energy policy affects foreign policy and how countries behave.
13:28 - Relying heavily on the wrong countries for resources can lead to instability in the world.
15:45 - A caller asks whether the prime rate hike will help to slow down inflation.
17:45 - Interest rate hikes will have a psychological impact on inflation and it gives the Bank of Canada ammunition if we enter a bear market.
20:22 - Housing prices are still being heavily impacted by the lack of supply available.
22:28 - The variable rate is still attractive. There may be downward pressure for fixed rates in the future as well.
24:29 - Justin has another interest rate metaphor for Marcus’ shirt.