Overview
In 2015, interest rates were a significant topic of discussion, with the Federal Reserve signaling potential shifts in monetary policy that would impact borrowers and savers alike. The year marked a pivotal period as the U.S. economy continued its recovery from the 2008 financial crisis, leading to anticipation of the first rate hike in nearly a decade.
- Economic Context: The broader economic landscape in 2015, including inflation rates and employment figures, heavily influenced the Federal Reserve’s decisions regarding interest rate changes.
- Federal Reserve’s Stance: Understanding the Federal Reserve’s communications and forward guidance was crucial for anticipating the trajectory of monetary policy throughout the year.
- Market Reactions: Financial markets, including bond yields and stock performance, reacted sensitively to every indication of potential shifts in interest rate outlook.
KWB’s 2015 Outlook: Understanding Interest Rate Changes and Their Impact
When it comes to interest rates here in Canada and around the world, the only thing we know is that we don’t know.
For the past 4 years economists around the world have expected interest rates to increase and not go lower.
What we do know is that Stephen Poloz, the Governor of the Bank of Canada, has been a huge supporter of a low Canadian dollar. He has said many times over the past few months that “Canada is fine but our economic recovery will follow that of the US”. This has been telegraphing to currency traders that Canadian interest rates will be well below US interest rates for some time to come. In response to this, currency traders have invested ‘long’ US dollars and ‘short’ Canadian dollars.
Governor Poloz was the past President and CEO of Export Development Canada and understands the importance of a weak Canadian currency in the exporting business.
January 21st, the Bank of Canada, in a surprise move, lowered overnight interest rates by 0.25% to provide support to our economy because of the decline in oil prices. This caused the Canadian dollar to decline further.
In late March, Governor Poloz said the slump in oil prices is having an ‘atrocious’ effect on the Canadian economy however a cheaper Canadian currency and a US economic revival should help Canadian exports drive an economic recovery.
Some believe the Bank of Canada could cut rates in Q2 of 2015. This would, in turn, put more downward pressure on the Canadian dollar. Governor Poloz has said that Canada’s central bank still has many options to help our economy, if needed. This includes pledging to keep interest rates low for a prolonged period of time.
For more information please call KWB at 780-466-6204 or email us by clicking here.
Thanks to Jane Alm of Angus Watt Advisory Group at National Bank Financial for providing this article.