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Expect About 2.5%-Points of Fed Rate Hikes: CIBC

July 10, 2021
3 mins
Family hiking on a trail

They say if you want to be wrong, try to predict interest rates. And if you want to be really wrong, try to predict long-term interest rates.

But, economists with a sense of humour do it anyways.

In this report by CIBC, they use recent history to guess at rates through 2026. Here's their conclusion:

  • "Unprecedented fiscal stimulus" and "pent-up consumer demand" will help the economy "overshoot" central bank targets for employment in the "next few years...before being contained by Fed rate hikes."
  • What happens after that is a "black box," CIBC says, but the Fed's policy interest rate—which influences most global rates—should level off around 2.50%.
  • Normalization of rates should happen "well ahead of the gradualist pace we saw in earlier decades."
  • "...If no new negative shock emerges" rates should stay "normalized" for a while before falling sharply backward.

Most economists would likely agree with a version of this forecast, if they were brave enough to prophesy that far ahead.

The takeaway here isn't where rates are going or when they'll get there. The point is mainly twofold:

1) To restate that economic forces should boost rates eventually (by sometime next year, say economists and the Bank of Canada), and

2) To remind folks that "falling sharply backward" is almost an inevitability for interest rates, once Fed and BoC rate increases do their dirty work (slow output).

What's up in the air are "simply" the magnitude of the next rate peak, how long it will take to get there and how long that peak will last. Knowing these three things would make mortgage selection too easy. But alas, not even the funniest economist has enough sense of humour to predict them all.

Rob McLister

Rob McLister has been informing mortgage consumers and professionals since 2007. In that time, he’s written more than 2,500 mortgage stories for publications ranging from the Globe and Mail — where he presently serves as mortgage columnist — to the National Post, Maclean’s, Canadian Mortgage Trends and RateSpy.com. Regularly quoted throughout the media, Rob is a committed advocate of greater transparency in the mortgage industry. He’s also been a vocal consumer advocate for more sensible mortgage regulation. In 2011, he launched two mortgage fintechs: mortgage comparison website RateSpy.com and digital mortgage broker intelliMortgage Inc. The former is the go-to source of Canadian mortgage news and the only site comparing all publicly advertised prime mortgage rates. The latter is Canada's leading online mortgage provider for self-directed borrowers. Both companies were acquired in 2019 by RATESDOTCA Group Ltd.

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