The U.S. Federal Reserve has cut its key interest rate by over 3/4% in an desperate effort to defibrillate the U.S. economy.
America’s policy rate is now practically 0%. Meanwhile, the Fed is also printing money around the clock to stimulate spending.
In a statement, the Fed said that “weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.” (You don’t hear grim long-range forecasts from the Fed very often.)
A lot of people are now finally starting to realize how bad things are getting for the U.S. economy. The Fed has cut rates an unprecedented 10 times in the last 15 months.
The Bank of Canada (BoC) is obviously watching all of this closely. Many think they’re getting ready for another rate cut on January 20. If so, that would be a boon for variable-rate mortgage holders (assuming banks pass along the cut). Canada’s key policy rate is currently at 1.50% so there is room for the BoC to drop more.
In the bond market today, the yield on 5-year Canada bonds broke the 2% barrier for the first time in memory. The 5-year now stands at just 1.93%. As a result–barring a rebound in yields–fixed mortgage rates may drop further this week or next.