Some goods and services are on the cusp of becoming more expensive in Canada..The US Federal Reserve (The Fed), equivalent to the Bank of Canada, increased interest rates by .25% on Wednesday, the tenth hike in the last 13 months. The Bank of Canada has held its rate at 4.5% at its last two meetings..The Fed’s increase takes the benchmark federal funds rate to a level of 5% to 5.25%, the highest level in 16 years..“The Fed’s post-meeting statement re-emphasized the central bank’s commitment to bringing down inflation but did not include a notation that “some additional policy firming may be appropriate,” which was included in its prior release,” reports CNN..“That omission leaves open the possibility for an upcoming pause in rate hikes.”.In a post-announcement press conference Fed Chair Jerome Powell said the central bank would “approach that question at the June meeting.”.The Fed said in a statement that tougher lending standards are designed to slow the economy, which could help the central bank achieve its targeted inflation goal..“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” said the statement. “The extent of those effects remains uncertain.”.The Washington Post reports policymakers spent Tuesday and Wednesday debating whether this May hike gets interest rates high enough to pause the Fed’s aggressive campaign against inflation and give time for their policies to work through the economy, or if they have more work to do to raise borrowing costs and curb demand for all kinds of investments, from mortgages to car loans to business hiring..Ramifications for Canadians.The RATESDOTCA website says higher rates in the US “give the American greenback an immediate boost, thus making our dollar weaker against it. While this would be great for Canadian exporters, it would hurt our retailers bringing goods across the border and make it more expensive for Canadians to travel internationally.”.It adds: “Fixed-rate mortgages would rise as they are tied to long-term Canadian bond prices, which are ultimately tied to the long-term US bond prices.”.“If the U.S. Federal Reserve raises rates, bond prices would fall. Banks sell bonds to raise money to lend to customers in need of mortgages. In the past, bond rates in Canada have risen when there has been a rate hike in the US.”.“When the US dollar is stronger, the price of oil goes up for Canadians as it is priced in USD. Even with Canada being an oil producing nation, the benefit to exporters of oil and gas does not outweigh the effect of a higher exchange rate. Therefore, if the Fed raises rates, expect prices at the pumps to rise as well.”
