What "Lower for Longer" Interest Rates Mean For Personal Finance

At the beginning of this month, it was announced that Tiff Macklem would be succeeding Stephen Poloz as the Bank of Canada governor, a move which was which has thus far appeared to be neutral as far as interest rate/monetary policy goes.

Macklem praised Poloz and the current team for their actions taken to try to stabilize markets and provide enough liquidity to financial markets so as to ensure the proper functioning of said markets thus far.

All accounts seem to indicate the new administration at the Bank of Canada is likely to maintain a “lower-for-longer” policy status for an indeterminate length of time. This reality could shape a continuation of the household debt bubble, which has continued to balloon to an excessive size in Canada.

This may lead to what may ultimately result in perverse side effects once the Canadian economy is forced to come down off of a monetary and fiscal stimulus high that will have lasted the better part of two decades, when all is said and done.

As I’ve said in the past, personal finances, like the balance sheets of companies one invests in, become more important in times of stress. Taking a good hard look at one's personal balance sheet and how to protect against potential lost income via building up a rainy day fund, deleveraging, and reducing non-essential spending is important.

I would recommend putting in place a personal debt service stress test at 300 to 400 basis points higher than the interest rate one is paying now to ensure enough room, should the economy turned really sour really quickly.

Invest wisely, my friends.