Interest Rates & Inflation

Interest rates have begun their climb. In March 2022, Canada and the US increased interest rates for the first time since the pandemic began. Expectations are for multiple further rate increases in the next year and beyond. We think this action is prudent in the face of the highest inflation since the 1980’s. Everyone feels the higher costs at grocery stores and gas stations, which have been exacerbated by the war in Ukraine. Increasing interest rates, and the cost of borrowing, should decrease demand and help cool inflation. However, the task for central bankers will be to thread the needle - they must aim to get inflation under control without pushing the economy into a recession. High inflation without economic growth, termed stagflation, would be very painful for the economy. Furthermore, there are other signs indicating that the economy may be stalling.  The ‘yield curve’ was recently inverted - long-term interest rates were lower than short-term interest rates. Historically, recessions have followed yield curve inversions about 60% of the time.  The silver lining for investors is that bond and GIC rates are a lot higher than they were just a few months ago. On another positive note, employment in Canada and the US is incredibly strong and the average household is financially in better shape today relative to the start of the pandemic.

Geopolitics

The war in Ukraine is a disaster. We are all sickened to see the loss of life and displacement of millions of Ukrainians. President Zelensky’s leadership continues to be inspirational. We all hope and pray that the war will come to an end very soon. While the long-term economic impact of the war is not totally transparent, it is clear that the world order has changed. NATO is more unified and globalization is going to decrease as supply chains are reconfigured. In the near term, food insecurity is a very big problem as many countries rely on Ukrainian and Russian wheat and other resources. Closer to home, the recent pact between the Liberals and NDP should keep the Liberals in power until at least 2025.

Pearlstein Wealth Team

Johnathan Sum has decided to move on to a new team at RBC. We wish Johnathan only the best as he moves forward. We are excited to introduce our newest team member, Sara Khafajian! Sara has many years of industry experience, with most of her time spent with another group at RBC. Sara is excited to meet everyone in the near future.

Wishing everyone a happy spring.

Pearlstein Wealth