Homeowners tracking monetary policy with a view to how Canadian mortgage rates will be impacted by domestic and global markets heard news from the elephant in the room – U.S. Federal Reserve Chairman, Ben Bernanke.
Comments from Mr. Bernanke, at the Fed’s meeting in Jackson Hole, Wyoming on August 28, indicated that U.S. central bankers remain committed to a low interest rate policy, and will take additional measures of quantitative easing, if necessary, to ensure that a faltering U.S. economy continues to grow. (Revised numbers released on August 28 show that second quarter U.S. GDP grew 1.6%, a pace lower than a Fed target of 2.4 per cent, but higher than some market expectations.)
The New York Times reported that Mr. Bernanke “opened the door to lowering long-term rates somewhat further,” while simultaneously taking the position that “exceptionally low” short-term rates would continue to be warranted for “an extended period.” Mr. Bernanke said that, “the Fed’s purchases of longer-term securities had helped bring down long-term interest rates and lower the cost of borrowing, contributing to the economic stabilization and recovery that began in the spring of 2009,” according to the Times.
The Bank of Canada will meet as scheduled on September 8 to announce what changes, if any, it will make to its key lank lending rate. (A rate hike had been widely anticipated on September 8, although analysts are now busily dialing back their forecasts.) “In Canada,” notes the New York Times, “the central bank committed to keeping a low policy rate until a specific time, while in Japan the central bank promised to keep low rates until consumer prices stabilized or rose.”
The article in the New York Times reports what many economic commentators have lately reported: that central banks are more concerned about possible deflation and falling prices, than they are about inflationary pressures due to low interest rates.”
Mr. Bernanke’s comments may put further pressure on the Bank of Canada to pause in its efforts to bring interest rates – including historically low mortgage rates – off the rock bottom lows of late 2009, early 2010. Homeowners considering refinancing their mortgage may want to do so before September 8, however, as analysts are still split down the middle as to whether the Bank of Canada will boost its lending rate 25 basis points to 1.0 per cent in September.
