I'm sure there's an argument to be made about not buying things you can't afford, but looking at the graph in that article, people are going to get fucked on mortgage renewals. Anyone that locked in for 3/4/5 years are going to be renewing between now and the next couple of years and going from BOC rate of 0.25% to 5% or more is going to hurt.

Someone I know is looking at renewing their mortgage in the next couple of months and they're already looking at a jump from 3% to >6%.

I really don't get this at all.

On one hand, I get that inflation is just the expression of the supply/demand curve and that increasing interest rates makes it more expensive to borrow money and therefore lessens demand and should, theoretically drop inflation.

But...

Anyone with half a brain knows that this round of inflation wasn't caused by overheated demand. It was driven by supply chain issues caused by the pandemic, avian flu, climate change and the Ukraine war. The price of oil alone drove much of the inflation numbers, both directly and indirectly by increasing the cost of production and shipping of other goods.

Does anyone at the BOC seriously think that 10%+ inflation in groceries was caused by overheated demand? Do they seriously think that people should be buying less food to lower grocery demand and reduce prices? Do they think that people will?

Does anyone think that the 6-12 month waits for a new car that are typical now is because gazillions of people are suddenly wanting to buy all at the same time? OK, there probably is pent up demand due to the fact that virtually no new cars were available during the pandemic, and lots of people want EV cars now, but the truth is that availability is way down compared to pre-pandemic times.

I see talking heads from the finance sector on TV all the time saying stuff like, "We need to tame an overheated economy...". DO WE? And then claiming that the interest rate hikes are working because inflation has come down. Yeah, right. Far more likely is that the supply chain issues are getting resolved, and supplies are increasing.

The truth is that the BOC has only one knob that they can turn, and that's the interest rates. So they're going to turn it. And the prevailing wisdom says that it takes close to 18 months for interest rates hikes to have an impact. So the downturn in inflation that started at the beginning of the year has virtually NOTHING to do with the big jump in rates that happened last spring.

As to that 18 month lag, it's probably even longer this time around because of the mortgage situation in Canada. Those people with huge mortgages have, to large degree, 5 year terms. So a comparatively small number of those people have had to renew under the new rates. And even if rates start to come back down next year, we're still going to see an increasing proportion of those mortgagees get hit with huge increases to their payments. And that's going to suck money out of the economy - big time. Are those people already tightening their belts, before they renew? Probably to some extent, but there's nothing like seeing an extra $2K-3K come out of your bank account each month to make it real.

Reminder that it's actually good to have an appreciable interest rate should a recession ever come. That was pretty sketchy during the '10s, if another big bank had gone belly up there would have been no way to juice the markets.

It super sucks if you have floating rate debt, though.

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The Bank of Canada raised its benchmark interest rate by 25 basis points on Wednesday, marking the first time since April 2001 that the figure hit five per cent. Some of the country's biggest lenders, including the Royal Bank of Canada, CIBC, Bank of Montreal and TD Bank, have already announced that they will match their increase effective Thursday to align with that of the central bank's. Could be mid-2025 before bank hits inflation target Wednesday's rate hike marks the 10th by the central bank since March 2022. During a mid-morning news conference on Wednesday, Bank of Canada governor Tiff Macklem said the bank expects inflation to ease but that it could take until the middle of 2025 to hit its two per cent target. "We've been clear about the indicators we are watching, and it's clearly too early to be talking about interest rate cuts," Macklem said, adding it's also too soon to tell how much impact the rate increases are having. Having started on a fixed mortgage, she switched to a new bank and took on a variable rate about a year-and-a-half ago - before the Bank of Canada began its quest to tame an overheated economy with a series of interest rate hikes. Bonnal questioned why the bank would continue to raise interest rates when inflation is close to its target range - and given that the impact of rate hikes can sometimes take more than a year to appear in the economy.

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I'm a little confused on the BoC's decision-making here. Don't interest rate changes take ~12 months to permeate the market? It's like these rate changes are being fired from a machine gun, won't this lead to an over-correction in achieving inflation targets?

Buckle up as we're in for a ride. Thankfully this will only impact those who bought in the last 5~ years. Pricing before then was much more reasonable and should be able to absorbed.

I’m concerned the BoC is eating gummies for the first time. Me thinks they should increase lead times with each subsequent rate hike, lest the compound impact hits all at once, which it already will. I’m wondering if this is all going to slam into a wall, forcing them to rapidly and dramatically slash rates.

I want to get off Mr. Macklem's wild ride

This is gonna be painful

Damn, will they stop?