Slow US Economy Could Affect Canada Variable Rates

Further to my comments yesterday about continuing to recommend variable rate mortgages to clients, there is a new story about the Chairman of the US Federal Reserve talking about an uncertain economic recovery in the US.

While Canada is a sovereign nation, like all other nations in the world at this time, the economies of each country are interconnected and affect each other, and the US in particular has a strong influence on the Canadian economy.

Now, the US Fed is stating that the economic recovery is uncertain and slow. If the US recovery is slow, then the US federal reserve will be unlikely to increase their borrowing rates anytime soon.

Canada has just raised prime rates twice in the past 5 weeks, and are the ONLY country in the G7 to raise their central bank rate at all. As I had mentioned in a previous mortgage post, historically Canada has only acted twice without following the US on central bank rates, and has shortly after backtracked both times.

With all of this information regarding the prospects of an increase in the Bank of Canada prime rate, it would be tough to conclude that the Bank of Canada can go much further without the US also doing so. As it appears at this point, the US will not be doing so for quite a while.

In conclusion, it serves as further evidence to me that variable mortgage rates will continue to remain low for the forseeable future, and will continue to be a bargain compared to fixed interest rates.

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