The Federal Reserve hikes rates and what that means for Canadian real estate

On Wednesday of this week, Federal Reserve Chair Janet Yellen, in her final act in the job, raised the benchmark interest rate from 1% to 1.25%. President Trump has made it clear that he intends to replace Obama appointed Yellen with Jerome Powell, an investment banker and former corporate lawyer who is a Federal Reserve Governor. Yelled cited strong economic indicators, growing employment, and a roaring stock market as reasons for the increase, suggesting the economy could absorb the now slightly higher cost of money.

US Fed: Yellen Is Out, Trump’s Pick, Powell Yet To Be Confirmed

President Trump made it clear throughout the 2016 Campaign that he saw Yellen as being too partisan (too Democratically aligned), and was consistent in voicing his desire to replace her. His nominee Jerome Powell is yet to be confirmed by the U.S. Senate, but is considered to be an uncontroversial, establishment figure but who is more aligned with the Republican party, having worked in the George H.W. Bush administration in the 90s and clerking for a former U.S. Republican Senator as a young law school grad. Powell will almost certainly be confirmed as the next Federal Reserve Chair.

Bank Of Canada: Rates Increase Likely In 2018

As Canadians, it is good of us to know a bit about the man who will effectively be running the U.S. economy soon. With interest rates increased one last time finally before the end of the year in America, it is highly likely that the Bank of Canada will follow by increasing rates sometime early in the new year, as long as our national economic indicators remain strong. The Bank of Canada keeps a very close eye on interest rates in the U.S. If rates increase in America, the value of the U.S. dollar goes up, putting downward pressure on our dollar. The Bank of Canada cannot allow our dollar to depreciate excessively as it will increase inflation and prices for Canadian consumers.

If the Bank of Canada increases rates again early next year it will lessen dynamism in real estate and will magnify pressure on prospective buyers by making fixed rate mortgages more expensive, especially in tandem with tighter mortgage rules.

Tembo is keeping a close eye on the Federal Reserve; what happens in D.C. has a huge impact on Canada and Canadian real estate.