What Recent Central Bank Rhetoric Means for Interest Rates

The current slow but steady economic recovery we find ourselves in has lent itself nicely to slow and steady interest rate increases from central banks around the world.

The U.S. Dollar, the world reserve currency, is perhaps the most important currency to watch in relation to other currencies around the world, and the impacts of monetary policy on the U.S. dollar have sent shockwaves through the world in recent quarters.

The Bank of Canada and other central banks around the world have begun to raise rates as well, in an effort to limit the currency exchange impact of U.S. rate hikes with domestic rate holds or cuts throughout the world.

While trade issues and energy export problems continue to plague the Canadian dollar, it appears Canadians will need to continue to expect rate hikes moving forward, though not necessarily in lockstep with American counterparts.

U.S. Federal Reserve Chairman Jerome Powell has reiterated the need for continued gradual rate hikes, and thus is setting up a scenario where investors and consumers expect such action in the near- to medium-term.

Beefing up investments in companies which benefit from rising interest rates is an obvious play, and reducing debt and leverage in one’s portfolio also makes sense at this point in time, resulting in a tug-of-war for many investors who are looking to decrease leverage but increase portfolio size simultaneously.

At this point in the cycle, I would caution investors to reduce debt at the expense of growing an existing portfolio, as a potential downturn may be around the corner.

Invest wisely, my friends.