Retire First has been nominated for the 2022 Alberta Business Awards of Distinction. Finalist will be publicly annouced Friday, April 22nd 2022.
As expected, Chair Powell of the Federal Reserve (Fed) all but guaranteed that rates will rise next meeting, and like the Bank of Canada admitted that inflation is persisting. Signalling that they are attentive to wage growth that could put further upward pressure on inflation. Stopping short of pace or magnitude Powell mentioned that interest rate normalization will not be as slow as in previous cycles. The market reacted negatively to the news of a faster rate cycle yesterday with the SP500 trading as high as 4454 prior to the fed announcement then trading down too 4310 to close the day down 0.15% at 4349. Some traders are placing their bets on five interest rates raises this year of 0.25% for a total raise of 1.25% by years end. Investors and borrowers should be aware that the interest rates will be on a rising path, and it will not be over after one raise in interest rates. We should expect the first move in a series of moves to come in March at the next Fed meeting.
The Bank of Canada surprised the market by holding the overnight rate at 0.25%, waiting for the United States to move first. Raising rates has the affect of slowing consumer demand by encouraging saving, but with rates at relative lows and negative once factoring inflation (-4.55%) it will take a series of interest rate raises to have any affect on inflation. For now, it should be expected that the silent tax of inflation will keep running. Looking at the supply side the fact is our supply chains are fragile. For instance, the average inventory held by semi-conductor consumers is now 5 days from 40 days in 2019. Any disruption to supply chain from Covid 19, natural disasters or political instability could have the potential to shut down manufacturing, sending prices higher. There seems to be little reason for inflation to slow, even the Bank of Canada is forecasting inflation for 2022 at 4.2%. With guaranteed investment certificates (GIC) rates well below inflation, investors should be looking to the stock market to out pace inflation and protect purchasing power. Now we wait for the United States Federal Reserve update at noon.