Posthaste: Bank of Canada seen cutting interest rates faster as markets panic
If you hadn’t heard of the Sahm Rule before, you’ve probably heard of it now.
Named after former Federal Reserve official Claudia Sahm, the rule holds that a recession is already underway if the unemployment rate’s three-month moving average rises half a percentage point from its low of the past year.
Friday that threshold was crossed — and everything changed.
Coming on the heels of other weak economic data, the jump in the United States jobless rate to 4.3 per cent was the last straw, and the market reaction has been swift and brutal.
Monday, while Canadian markets were shuttered for the holiday, the S&P 500 dropped three per cent in its worst day in nearly two years and Wall Street’s “fear gauge,” the VIX index, spiked the most on record.
Futures were climbing this morning as investors look for bargains, but analysts warn the respite may be temporary.
Weeks ago, markets were certain of a soft landing; now investors fear the Fed has tarried too long to cut interest rates.
On Friday, the U.S. 10-year yield plunged 9.8 per cent from the week before. A drop this deep hasn’t happened since the global financial crisis, said MortgageLogic.news analyst Robert McLister. In fact such a drop has only happened three times since 1962 — and none of them were good.
Markets are now pricing in a strong chance of 1.25 percentage points of cuts from the Fed this year, when just a week ago the bets on that were about zero. Such is the panic, that at one point Monday the market was pricing in a 60 per cent chance of an emergency cut within the next week, said Bloomberg.
All of this impacts Canada as well, and economists here are changing their forecasts.
“With the Fed expected to get a bit more forceful, this opens the door for the Bank
Read more on financialpost.com
