Ali Hanif February 8, 2019 No Comments

We’re addicted to covering the Federal Reserve at Tembo for the simple reason that it effectively runs the global economy and sets the tone for Canada’s economy, exchange rate, and real estate market. It is that important an organization.

The Fed has made big changes in tone and policy lately, it appears growingly certain that its previous zealous push for higher rates has now been put on a deep pause. The word on the street is now all about ‘rate hike pausing.’ The Fed has been under huge pressure from business leaders, Wall Street insiders, softening economic data, and Donald J. Trump himself. 
Fed Chair Jerome Powell did not raise rates at the last Fed policy announcement. Former Fed Governor Neel Kashkari said the pause would allow the economy to keep growing. Global markets have reacted to the news timidly. While no big falls in stocks occurred, global markets at best were static.
There is simply too much negative news, too much uncertainty, and too much increasingly bleak data around the world to heighten optimism to boom levels. Here in Canada, the Fed’s pause is likely to reinforce the BOC’s own caution given Canada’s own worsening economic data. This pause will be good news for Canadian real estate, already under big pressure.
At the same time, the Fed issued a paper suggesting that negative interest rates, where the Central Bank pays borrowers to borrow money, would have engendered a fasterand deeper economic recovery. This not so subtle message to the market suggests the Fed is making it clear that it is still in the business of inflating stock, asset, and real estate bubbles and making money dirt cheap if need be.

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