A friend is considering renewing their mortgage next February, worried that interest rates will rise after President Donald Trump’s proposed rate cut of 300 basis points. However, the situation is more complex than it seems.
Trump wants lower interest rates to boost the housing market and stimulate economic growth. But his plan conflicts with higher tariffs to protect US industries, which could lead to higher inflation. The Federal Reserve, led by Jerome Powell, is hesitant to comply with Trump’s demands, fearing it would compromise their primary goal of controlling inflation.
If Trump succeeds in cutting interest rates, it could have a devastating impact on the Canadian economy. A significant drop in US rates while the Bank of Canada (BoC) maintains its stance would put pressure on the loonie, exacerbating trade problems with the US.
The stock market seems oblivious to these concerns, but some indicators suggest investors should be cautious. The Conference Board’s Leading Economic Index for the US dropped 0.3 per cent in June, signaling slower economic growth and higher inflation.
In Canada, mortgage holders face a tough decision if Trump gets his way. With the threat of stagflation looming, it’s essential to be aware of the potential risks and consider alternatives before making any decisions.
Source: https://www.theglobeandmail.com/investing/markets/inside-the-market/article-trump-tariffs-interest-rates-inflation-economy