Will They Or Won’t They Increase US Interest Rates?

Today is an important day for investors as it will provide a window into the economic outlook for the US economy and future interest rates increases. Our partners at NBF Economics have forecasted that the ‘Fed’ (US Federal Reserve) is seen as likely to take the Fed funds rate higher looking further down the road. NBF economics has projected their base case scenario for the target Fed funds range at year end 2019 remaining at 2.75% to 3.0%. This is more aggressive than what the Fed funds futures market is pricing in at this writing earlier in 2018 (see graph).

A recent CNBC consensus estimates a range to 2.25 to 2.50 percent and to remove language in its post-meeting statement that says it will continue with “gradual” rate increases. This may mean the US economy is slowing and no further rate increases to quell inflation concerns may occur.

As for the NBF Economic forecast, we continue to expect a US GDP growth rate of 2.3% on average in 2019 with no runaway inflation. This environment, in our view, would support further policy normalization. Enjoy a detailed discussion of the economic forecast and interest rates outlook from our partners at NBF Economics here:

Monday Monitor: June 19th Interest Rates & Housing

U.S. Interest Rates Rise, Bank of Canada sends a signal for future rate increases, while housing markets react. Economic signals are indicating the later stages of recovery in North American Markets.

Housing Markets Year over Year

The Teranet–National Bank National Composite House Price IndexTM climbed 2.2% in May, the largest-ever increase for that month in the 19 years covered by the index. Home prices rose in all of the 11 metropolitan regions covered, a first in 12 months. It is well known that housing price increases are driven by a few markets. Recently, Vancouver has climbed after speculative taxes were implemented as Toronto seems to have cooled off, but the trends remain to be seen. Read a detailed review by our partners at National Bank Financial Economics.

Housing Prices and Interest Rates May 2017
Housing Prices and Interest Rates May 2017

Interest Rate Trends

In a recent speech by the Bank of Canada’s Senior Deputy Governor, Carolyn Wilkins, the groundwork was laid for a tightening of monetary policy sooner than markets were anticipating. Wilkins described Q1 growth of 3.7% annualize as “pretty impressive.”  In explaining the performance, she emphasized the contribution of growing business investment. The Deputy Governor was also keen on reminding her audience that Canada’s good showing was “not being driven by just a few key industries”. The signal of a potential increase of 25 basis points in October was apparent in Wilkins comments. Wilkins declared that, under such conditions, the “Governing Council [would] be assessing whether all of the considerable monetary policy stimulus presently in place [was] still required.” Enjoy a full review by our partners at National Bank Economics.