(May 23 – 9:30 ET) – Higher interest rates, rising energy prices, and reduced stock market gains indicate the end is near for short-term interest rate increases, according to Royal Bank economists.
The report “Current Analysis” predicts a 25-basis point increase by the U.S. Federal Reserve in June, but suggests this should be the last such increase this year.
“Canadians can take comfort in the fact that the lion’s share of interest rate increases are behind us now,” said John McCallum, chief economist for Royal Bank. “The U.S. economy is expected to cool in the short-term, Canadian inflation pressures are modest and we think the Bank of Canada has reached the end of its tightening cycle,” he said.
The report says higher interest rates already in place are now beginning to impact on the interest rate sensitive sectors of the economy. In particular, the housing market has passed its peak in sales and starts.
Volatility in the stock market could also have a cooling effect on consumer spending during the year.
The third force at play is the recent firming of energy prices. This will divert money away from spending on other goods and act to slow corporate profits and non-energy consumer spending.
The full report can be viewed and downloaded at www.royalbank.com/economics.
-IE Staff