Coming in soft

While we were busy flummoxing and vibrating over public finances yesterday, big news to the south. News that will materially affect Canadians. So take note.

The US inflation rate cracked 3%, finally, coming in at 2.9%. That’s the lowest level in three years. It is a material victory after the cost-of-living index crested at 9.1%. This is the lowest number since early 2021. It sets the scene for an all-but-certain rate drop on September 18th. And it suggests Kamala Harris is a step closer to a Trump dump.

Of course it also means Canadians rates will continue to decline. We might even see the third chop in a row right after Labour Day.

Already fixed-term rates are retreating at the big guys. This week the first of the major banks came out with an advertised and uninsured fixed rate of less than 5% – the first in more than two years. Scotia is now offering to lock you up at just 4.98%. Yes, a bunch of CUs and brokers have been selling home loans at this level or less for a while, but the major banks dominate (90%+) the mortgage business, so this is big news.

More to come. Lots more. If you believe the major economists, our central bank rate (now 4.5%) will plunge to just 2.5% in a little more than a year. It’s actually conceivable aggressive lenders will be flogging 2.99% fixed-rate loans by the autumn of ’25 and certainly for the rutting season in early 2026. Just imagine what that might do to the real estate market – unless we have a recession.

But wait. Why would there be one? Everything’s going peachily.

The States is headed for a soft landing. The Fed will cut on September 18th, again on November 7th and by the eighteen of December Mr. Market figures the policy rate will have dropped a full 1%. That is a huge change from just weeks ago when most people figured a quarter point chop was all 2024 had in store.

But the US economy is cooling in a measured way. Unemployment has risen to 4.3%, which is still amazingly-low after ten rate hikes. The stock market had a cow last Monday and quickly recovered based on interest rate projections and corporate profits (up 11%). For the year to date the S&P is ahead 16.5%. Bond yields are down and prices up. B&D portfolios are doing swell. The economies of both Canada and the US are plumping.

In short, as we’ve been saying here for a dog’s age, the CBs know what they’re doing. The highest inflation in four decades – the direct result of a once-in-a-century global pandemic – has been squished by monetary policy tightening. The economy chilled as planned. But unemployment has not spiked. Corps have not been whacked. GDP has not gone negative. There is no recession on the horizon. Thus far, a soft landing.

As you might imagine, it’s music to the ears of the never-Trumpers.

The entire Trump economic platform has been to decry inflation and tell Americans how bad their economy is. But it’s not. GDP has been growing. Employment levels have soared. Wages are running hotter. Real estate values and people’s 401k accounts are fatter. Equity markets have delivered outsized returns. And now inflation is down to 2.9%. By the time of the election in early November there will be one rate cut in the bag and two on the way. Those 30-year mortgages that soared well above 7% will be headed back down toward an historic norm in the 5% range in 2025.

No Trump, say economists here, means no reversal in Canadian interest rates. No new trade barriers. And no resultant recession.

These are not partisan statements. Just reality. Those who want recession, hard landing, high rates and pain are (a) people with wealth, assets and income insulating them from the real world or (b) folks who want to ‘burn it all down’ in order to bring regime change. Trump is both. Ditto for many on this blog. They would gladly sprinkle hardship on families in order to get rid of Trudeau, for example. Others argue for a ‘hard recession’ so house prices will become affordable to them.

The news today: you’re all out of luck.

We’re floating earthward just like one of Elon’s fancy butt-first rockets, about to snuggle into its landing pad. Perhaps even he will see the light. It’s coming.

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Source: https://www.greaterfool.ca/2024/08/15/coming-in-soft-2/