To taper or not to taper. That has been the question on the minds of economists and investors for the past six months. Whether it was nobler for Ben Bernanke to cut rather than surprisingly continue the central bank’s extraordinarily loose monetary policy in September has been up for debate by analysts and pundits the world over.
Diehard gold bugs hope the inflationary slings and arrows from the US Federal Reserve’s “QE3” program involving $85 billion in monthly bond purchases will eventually lead to a sea of market troubles.
That should put to sleep the bear market facing the precious commodity sector and end the heartache gold investors have had to endure this year after a decade of record price increases.
But they may have to tolerate the whips and scorns of time for much longer than previously expected.
Central 1 Credit Union’s latest interest rate forecast has tapering of the Fed’s quantitative easing program occurring in April 2014.
But other estimates suggest that tapering could be instituted as early as December.
Helmut Pastrick, Central 1’s chief economist, said tapering would depend on when the U.S. economy stabilizes and after there’s more certainty over plans for the federal government’s budget.
Slack in the U.S. economy, at least for the next few months, doesn’t necessarily bode well for Canada’s economy.
But for mortgaged homeowners and businesses leveraging for growth, the slower-than-expected return to more substantive growth means interest rates aren’t going to budge as soon as was expected in the early part of 2013.
In its latest announcement, the Bank of Canada removed any mention of an increase in the central bank’s overnight lending rate, reflecting a “downshift in growth expectations” according to Central 1.
And while expectations of US Fed tapering improved bond yields over the summer, they have since fallen.
According to Pastrick, the Bank of Canada rate isn’t expected to rise for another year and a half, a six-month delay from his previous forecast because of muted economic growth.
As a result, variable rate mortgages will remain near record lows, and fixed-rate mortgages could drop before edging up again next spring.
Until then, gold bugs will have to sleep on their hopes and dream of gold’s future rise.
