Consequence of the Fed Divergence

The Real Estate Espresso Podcast

Consequence of the Fed Divergence

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Consequence of the Fed Divergence

Welcome to the Real Estate Espresso Podcast; I’m your host, Victor Menasce. Today’s show deals with the latest Federal Reserve (Fed) announcement. What makes this intriguing is the noticeable divergence between the Fed, the Bank of Canada, and the European Central Bank.

Our week started with the Bank of Canada lowering its rates for the sixth time as of last Tuesday. The new rate, lowered by a quarter point, currently sits at three percent down from three and a quarter. With the rate announcement, the central bank issued a 53-page monetary policy report that describes the current economic climate and the outlook for the next year and beyond.

The bank acknowledged that January’s monetary projections are more uncertain than usual owing to President Trump’s tariff threats, though it clarified that the threats did not factor into the interest rate cut. While global economy growth is projected at about three percent over the next few years, the Canadian economy seems set to lag globally in terms of real economic growth.

The U.S. Federal Reserve announced last Wednesday that it would be keeping the rates constant, despite the market and the Fed clearly not working in sync. There are two interest rates that matter: the short-term rates, which usually align with the fed funds rate, and the long-term rates. If the central bankers’ plans diverge from what the market believes to be viable, the market tends to find a way around it, leading to shifts in currency exchange and sometimes substantial price instability.

This divergence in rate policies across the world presents a conundrum for global investors and politicians alike, with both having to adjust to market dynamics and decisive foreign policies.

Despite uncertainties, I urge you to have a productive rest of your day, create great things, and join us again tomorrow for another thoughtful discussion on the global economy from a real estate perspective.