Global accommodating cycles are intensifying as economic apprehension and wariness over the potential of a slowdown grows.
A few days ago Fed Chair Jerome Powell announced that the Fed would cut rates again from 2% to 1.75%. This comes as the rate of home flipping (buying early, renovating and/or holding, and then rapidly selling) has reached 8 year lows and news of a manufacturing recession in Germany transitioning to the services sector hit markets. Trump can claim another big win with the Fed’s decision. Market reactions have been mixed, with many claiming the cut was premature and obviously a political sign of subservience to the President. As rates are falling, the price of gold is hitting many-year highs, the pressure on emerging market currencies are also rising.
Bloomberg, a major U.S. financial services and news organization is predicting that Central Banks in Brazil, Russia, Nigeria, South Africa, Australia, and India among many European countries will all cut rates to stimulate credit creation and softening economies. Several trends are of concern to market analysts, the aforementioned Germany slowdown one of them, but Mexican car production is also going down, as is some U.S. industrial activity. The emerging signs of industrial weakness around the world was repeatedly cited by Jerome Powell as one of the reasons he chose to cut rates again so quickly after his earlier cut. A reminder for readers that U.S. interest rates are determined by members of the FOMC (Federal Reserve Open Market Committee).
CBC News is reporting that the two rate cuts by Powell will likely force Bank of Canada Governor Jerome Powell to reduce rates here in Canada. While Bloomberg reported that it doubts a BOC rate cut in Canada for 2019, there is still time left in the year for a decision in the fourth quarter. A late 2019 rate cut would have a positive impact on real estate and consumer spending for the holiday season and would help the economy prepare for 2020. A rate cut would have a positive and immediate psychological impact on the real estate market as it would lower mortgage costs; within a few days possibly.