{"id":146633,"date":"2025-09-15T22:19:07","date_gmt":"2025-09-15T22:19:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/146633\/"},"modified":"2025-09-15T22:19:07","modified_gmt":"2025-09-15T22:19:07","slug":"want-to-make-people-more-anxious-about-their-finances-cut-interest-rates","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/146633\/","title":{"rendered":"Want to make people more anxious about their finances? Cut interest rates"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Lowering rates when the economy weakens has always been a basic strategy, but the Bank of Canada kept rates too low for too long during the pandemic, producing an inflationary hangover.Justin Tang\/The Canadian Press<\/p>\n

The No. 1 problem in personal finance today is that the cost of living your life is oppressively high. <\/p>\n

We will soon see if lower interest rates can fix the problem. The answer is likely no. <\/p>\n

With the economy struggling, there\u2019s a good chance the Bank of Canada<\/a> will trim its trendsetting overnight rate on Wednesday or later on in the fall. In the United States, President Donald Trump<\/a> is aggressively pressuring the Federal Reserve to lower rates by a lot. <\/p>\n

While rate cuts sound like just the thing for affordability-challenged households, they could do more harm than good to the country\u2019s personal finances. Potential risks if rates keep falling include higher home prices, frothier stock markets and maybe even higher inflation. <\/p>\n

Lowering rates when the economy weakened has always been a basic strategy for central banks. But the Bank of Canada, the U.S. Federal Reserve and others kept rates too low for too long during the pandemic and produced an inflationary hangover that still lingers. Here in Canada, low rates also pushed house prices to ridiculous levels of unaffordability. <\/p>\n

Amber Kanwar\u2019s Weekly Setup: All eyes on Bank of Canada and Fed interest rate decisions<\/a><\/p>\n

European Central Bank leaves rates unchanged as economy withstands tariffs<\/a><\/p>\n

Despite tariff<\/a>-generated economic uncertainty, the Fed and the Bank of Canada have sensibly resisted rate cuts so far. It hasn\u2019t been easy. Mr. Trump is demanding lower rates to juice the economy and ease the debt burden of the heavily indebted U.S. government. <\/p>\n

Pressure for rate cuts in Canada is growing as a result of an economy that seems to be getting worse month by month. Current economic lowlights include a sharp contraction in the economy in the second quarter of the year, a rising unemployment rate and a tame headline inflation rate in July. <\/p>\n

Lowering rates means cheaper borrowing for business and individuals, which in turn means more economic activity. For example, businesses may invest for growth and individuals may support those businesses by ramping up their own borrowing and spending. <\/p>\n

Increased consumer spending can put upward pressure on inflation, though. We could end up with a select group of financially comfortable people spending more and driving up prices for everyone, including households that already feel crushed by the cost of living. <\/p>\n

As bummed as many people feel about the economy, consumer spending has held up quite well so far. Trade disruptions are expected to slow things down, but rate cuts could turn things around. <\/p>\n

A better way to address economic anxiety is to build the economy, which is what Prime Minister Mark Carney has promised to start doing in the budget he will release in the coming weeks. More growth can pay off through higher wages and living standards. <\/p>\n

While we wait to see if Mr. Carney delivers, inflation remains a problem at the household level. The overall July inflation rate of 1.7 per cent was modest, yet there are pockets such as food and shelter where price hikes are a fair bit higher. At a recent meeting of the federal cabinet, ministers were told that the cost of living is once again the top voter concern in Canada, bumping tariffs. <\/p>\n

A big part of the story of why people are so unhappy about the cost of living is the unaffordability of housing for many people, particularly in big cities. If you want to make housing even less affordable, lower rates are the way to go. <\/p>\n

Most people buying homes and renewing mortgages today are going with fixed-rate mortgages, which are mostly unaffected by a drop in the overnight rate. Variable-rate mortgages do reflect changes in the overnight rate, and they\u2019re gaining in popularity. National Bank Financial reported recently that variable has a market share around 30 per cent in new mortgages, up from less than 10 per cent in the middle of last year. <\/p>\n

It\u2019s a win for home buyers if variable-rate mortgages get cheaper \u2013 for a week or maybe a month. After that, prices will start to rise and offset the benefit of lower borrowing costs. The plunging cost of variable-rate mortgages helped fuel the regrettable housing boom of 2020-21. <\/p>\n

Another risk of lower rates is that they add unneeded fuel to the stock markets. Stocks have been unusually generous to investors in recent years and a sharp pullback is coming at some point. The higher stocks go in the near term, the more downside there is. <\/p>\n

If interest rates do fall this week, people with lines of credit and variable-rate mortgages will undoubtedly benefit. But the overall impact on today\u2019s top problem in personal finance will probably be negative. You might even say a rate cut is unaffordable.<\/p>\n

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Lowering rates when the economy weakens has always been a basic strategy, but…\n","protected":false},"author":2,"featured_media":146634,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-146633","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/146633","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=146633"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/146633\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/146634"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=146633"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=146633"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=146633"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}