As Greg Ip notes in the Wall Street Journal today: “Every recession starts out looking like a soft landing. August’s moderate increase in unemployment was welcome. The risk is that plenty more are in store, which won’t be cause for celebration.“
In reality, recessions are the norm following monetary tightening cycles, and unemployment rises through contractions and well into the next economic expansion. Unemployment is now increasing in Canada and the US, and central banks are intent on further job losses to reduce demand (inflation) in the economy.
For investors, it is critical to understand that the stock market has never bottomed while central banks are hiking or at their pause. In the seven hiking cycles since 1969, the average time between the last rate hike and the stock market bottom has been 15 months, and the bulk of cycle losses happened while central banks were slashing rates again. On the other hand, government bond prices rose in the six months following the end of past tightening cycles (yields fell).
Frances Donald, global chief economist and strategist at Manulife Investment Management, joins BNN Bloomberg for her view on the Bank of Canada’s latest rate decision. Donald says the BoC doesn’t need anyone to get excited about rate cuts as it could bring inflation higher; hence the Bank remains hawkish. She adds the Bank will probably cut rates in early 2024. She says Canada is likely in a technical recession. Here is a direct video link.