Flip, Flop, and F*cked

Well there we have it. Probably the big news for the year was just released. And no, this has nothing to do with a budget.

After insisting, up until 2 weeks ago that the Fed would cut rates at least 3 times this year, Jerome Powell has flipped…..or flopped, or whatever you want to call it. At today’s release, he now admits that inflation is higher than he would like, and has doubts as to whether the Fed can cut at all this year!! This is massive for Tiff and Co. If the fed is on the sidelines for the remainder of 2024, Tiff’s job just got a whole lot harder. None of this surprises me. I have been saying all year that I don’t think rates come down, and I thought the CAD would suffer. Well, here we are. Keep in mind that 3.5 months ago, markets were calling for upwards of 8 Fed rate cuts in 2024. From 8, down to zero is 3.5 months.

Cad is taking a beating, and the 5 year note is starting to tick up. Yields had been down this morning, and is flipping around the breakeven, but could easily end the day higher. Lower Canadian dollar, higher interest rates, and now a move from the Fed will make it hard for Tiff. If you have clients on the fence, and I cannot stress this one enough : Get those pre apps in to hold rates. Get your rate drops solidified. Get any business you have in and approved, cause fixed rates are probably gonna move higher now.

Sure, Tiff can cut rates, however, he will have to possibly delay any cuts and/or reduce the amount of cuts. Tiff can move without the Fed, however he cannot afford to get more than 50, maybe 75 bps away from Fed policy. That means that if the Fed is on the sidelines until 2025, then maybe Tiff squeaks in a cut or two, but let’s be honest – what is 50 bps going to do? And, with the inflation reading this morning ticking back up, a June cut appears less likely, meaning we push into July or September. Can people hold on another 3 or 6 moths to get 25 or 50 bps of relief?

Central bankers are always flipping, and sometimes flopping, but with today’s flip, or flop, people are….well, you get the idea…..