What goes up must go down, but if you’re waiting for deflation to start soon, you may have to wait a long time.
Inflation — and the rising interest rates that aim to thwart it — is the number one concern for any economist right now, and Farm Credit Canada’s chief economist is no different.
JP Gervais says rising interest rates will slow demand and help contain inflation, but the timeframe could be 18 months or more.
And what about that interest? The US Federal Reserve released an aggressive 0.75 point hike in the latest round – is it a foregone conclusion that Canada will do the same? Not necessarily, says Gervais in the following interview.
“I’m not sure if we’re going to get 75 basis points (increase). I think it’s still a coin toss,” he says. “But I guess at the end of the day, you know, if we get a 75 basis point hike in July, or if we get 50 and then three more consecutive rate hikes, you’re looking at 175 basis points a year year-end.” (more after audio)
However, Gervais adds that he believes the market will correct itself and bring inflation under control, adding that it’s important to know that the market is pricing in these increases over time.
Most farmers want to know if now is the right time to fix interest rates on pending loans. Is it foolhardy to expect that a market slowdown will lower interest rates in the near term, or is there a risk that interest rates will continue to trend higher? Right now, when you set the rates, it’s at a more expensive rate than it was six to eight months ago
“That’s a tricky question for many companies,” he says.