Possible Rate Hike Next Week

         In the years between 2007 to 2009, the world experienced the biggest recession since the Great Depression. This recession is commonly referred to the subprime meltdown or the financial crisis.  As a result of this, the interest rates in the United States and Canada were lowered to below 1% by the Federal Reserve and the Bank of Canada, respectively.

         With the interest rates so low, it made borrowing money cheaper.  At the same time, savers felt the pinch as they were getting little to no interest on their high interest savings account or GICs.  GICs, equivalent of CDs in the United States, is a guaranteed investment certificate. The low interest rates mean lower mortgages for people who are renewing their mortgages and buying there first house.
   

        These  people who took out mortgages to buy a house might be in for a shock in the future.   When their term of the mortgage is near done, the individuals will have to renew their mortgage for another term.  When this time comes, the interest rates will likely be higher than they currently at this point in time.  This means that they will have higher mortgage payments in the immediate future.

        Recently, the Fed raised the interest rate from on June 15 2017 from 1% to 1.25%.  Previously, they raised it from 0.75% to 1% in March.

       Currently north of the 49th parallel has Bank of Canada interest rate of 0.50%.  Bank of Canada has not raised its rate in over 7 years. The consensus is the Bank of Canada is going to raised the rate to 0.75% this coming week.

       During the last week, Royal Bank has raised their rates on their 1 , 3, and 5 year-term mortgages by 0.20% each.  Has history has shown, usually all the other banks in Canada follow by raising some of their rates.

       Canada has a excellent jobs report during the last week, fuelling the likelihood of them raising their rate for the first time in 7 years.  Although Canada has strong economy, their economic engine is the province of Alberta. Alberta has been hit extremely hard since late 2014 with low oil prices.  Alberta received money from oil and gas royalties, which have been falling due to low oil prices and exploration companies not drilling as much due to the low oil prices. In Canada, the wealthy provinces help out the not so wealthy provinces via transfer payments. The 2 provinces that do this are Alberta and Ontario.  In Alberta, there has been massive layoffs in the oil and gas sector and companies the service the oil and gas sector.  In my case, the latter applies.  My company has since closed their doors in November 2016.

 Conclusion:

     People from all over Canada, work in the oil and gas industry in Alberta.  The oil and gas industry is spread out over British Columbia, Alberta, and Saskatchewan.  Most of the oil and gas in in Alberta.  People fly in and fly out of the jobs , besides the people who work nearby.  The reason is the a lot of the shifts in the oilfield and oilfield service companies are  like 15 days on and 6 days off or 14 days on and 7 off. For oilfield services, the workers involved in field operations are on call 24/7 along side with showing up to work at their shops. For example at a previous job I did years back, the shift would start Wednesday at 8am.  I would have to show up to work and if their was no rig book for our services within a day, I would work in the shop.  If an exploration company booked our services for later in the day or evening, our team would decide a plan of action.  This could be going home to sleep, what time to meet back at the shop, and what route to take to rig.   For oil rig workers such as drillers, roughnecks and derrick hands, their shifts 12 hours long and they stay in camps or nearby hotels on off time.

      Some analysts in Canada are on the record saying that this is not the right time for Bank of Canada to raise its rates. Besides what is going on with the economy is Alberta, there is a potential for a major housing crisis in Toronto and Vancouver. These two cities have extremely high prices on homes compared  to the rest of Canada.  Calgary is not far behind.

    North America has not had a recession since 2009.  With interest rates so low, a recession now would be horrendous.  It would likely mean negative interest rates. The Fed and Bank of Canada raise their rates in order to slow the economy down.  During a recession the price of oil usually goes lower.  I believe the Bank of Canada, should really think twice of raising the rates at this time. Alberta does not have a sales tax, whereas all other provinces and territories in Canada do have a sales tax in one form or another.

    It does appear rather odd to have the stock market in Canada flirting with all times highs despite having price of oil below $50 dollars per barrel.  Neither Alberta or Canada are members of OPEC, which is the Organization of Petroleum Exporting Countries.  The price of oil will have a huge negative effect on Alberta for years to come.

DISCLAIMER

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.