Turning to Canada, he said that while the country’s core inflation rate is not nearly as elevated as the UK’s, the latest numbers show it still remaining above the Bank of Canada (BoC)’s 2% target. Lin noted that a fair amount of this can be pinned on high shelter inflation, as Canada’s housing market has remained fairly robust despite elevated interest rates.
With core inflation remaining above target, Lin said it’s likely that the BoC will have to keep interest rates at elevated levels for some time. Currently, the central bank’s benchmark rate stands at 5%, Lin said, noting that he expects it to remain at this level when the BoC meets again in September. “With rates already deeply restrictive, any additional hikes would only increase the risk of inadvertently tipping the Canadian economy into a recession. This leads me to believe that the BoC will probably keep rates unchanged next month,” he stated.
All eyes on Powell at upcoming Jackson Hole conference
Speaking of central banks, Lin noted that central bank officials from around the world will convene 24-26 August in Jackson Hole, Wyoming, for the Federal Reserve (Fed)’s annual economic policy symposium. He said that one of the highlights from the conference will be Fed Chair Jerome Powell’s 25 August speech. “Investors will be closely watching Powell’s speech for hints about how the Fed may respond to the latest economic and inflation numbers,” Lin remarked.
He said that in particular, markets will be looking for any clues on the future path of interest rates. Although Lin sees the current federal funds rate of 5.25%-5.5% as deeply restrictive, he said some industry analysts believe the Fed may still tighten even further due to the robustness of the labour market. “The U.S. unemployment rate, for instance, is still near a record low. It’s measures like these that have some people thinking the Fed isn’t done hiking yet,” Lin explained.
While additional rate hikes could still be possible, he believes the Fed will hold rates steady at its September meeting in order to have more time to assess the latest batch of data. “It’s possible that by the time the next meeting rolls around in November, there could be enough slowing in the numbers to convince the Fed that it doesn’t need to raise rates any more,” Lin stated. However, he stressed that above all else, the U.S. central bank remains committed to bringing inflation under control.
Recession chances still elevated
Painter and Lin wrapped up the segment with a look at recession chances, which Lin said still remain elevated. However, he emphasised that in his view, if there is another recession, it’s likely to be on the mild to moderate side.
“I think when people hear the word recession, they have a tendency to think of the past two recessions 2020 and 2008 which were both severe in nature. Call it twice bitten, once shy,” Lin said, before adding that in his opinion, the lack of significant imbalances in today’s economy makes a repeat of a 2008- or 2020-style recession unlikely.
Regardless, with a recession possible in the next 12 to 18 months, he advised investors to continue staying disciplined. “Have a plan and stick to it and this will help you weather the potential economic storm,” Lin concluded.