Housing market, energy sector problems, and slowing consumer spending all point to serious economic issues.
As I recently reported, Bank of Canada Governor Stephen Poloz is laying the groundwork for bringing interest rates up to 3%, despite 33% of Canadians fearing bankruptcy due to rate increases and despite other indicators of economic weakness.
Now, CIBC economist Benjamin Tal is issuing warnings about the impact of potential interest rate hikes.
As reported by BNN Bloomberg, Tal, “deputy chief economist with CIBC World Markets, called the neutral rate a “theoretical number” and said the Bank of Canada needs to proceed carefully. “I suggest three per cent may be way too high given where we are in the economy, given the demographic story, given productivity and many other reasons,” Tal said, pointing to growth concerns including a slowdown in consumer spending, Canada’s cooling housing market and uncertainty in the energy sector.”
Added Tal, “My fear is that we’re chasing something that’s in the air, and it might actually impact real life. Because every economic recession was helped, if not caused, by monetary policy error in which central bankers were chasing inflation that was not there, took interest rates much too high and killed the economy. We have to be careful here.”
Tal makes a very important point here. While the federal government and Bank of Canada appear desperate to make the economy seem strong, the reality on the ground is far different. Multiple indicators point towards serious economic problems, and a highly indebted population facing interest rates in a weakening economy is a recipe for disaster.