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5 reasons Canadians should care what the Fed does tomorrow: Don Pittis




Expect a change in tone from the world’s most powerful central banker tomorrow when U.S. Federal Reserve chair Jerome Powell offers his latest outlook on interest rates. 

Powell has instituted a new system where he will give a news conference after every policy meeting, providing better insight into his thinking month to month.

Analysts are expecting that a gloomier economic outlook means the Fed will hold off on interest rate increases, continuing to be “patient and flexible” on new rate hikes.

But the Fed’s reaction to renewed fears of a global recession could turn out to be good for Canadians. Here are some reasons why.

1. Stronger loonie

Tourists walk at the beach in Varadero, Cuba. Other things being equal, a lower path of U.S. interest rates will make the loonie go further on winter holidays. (Fernando Medina/Reuters)

​Market indicators are telling us that the chance of the Fed chair announcing a rate hike Wednesday is now pretty much zero.

But there is some chance Powell could do more to stimulate the economy, including dropping hints that the pace of future rate hikes will be more moderate.

The growing differential between the Canadian and U.S. interest rate is one factor keeping the loonie soft.

If currency traders foresee a narrower gap between the two rates, the Canadian dollar should remain stronger than if the spread continued to widen — making imports cheaper and winter beach holiday spending go further.

2. Higher wages

Skilled workers have been in short supply for awhile, but employers are now complaining even unskilled employees are hard to find at current wages. (Mark Blinch/Reuters)

In both Canada and the U.S., there are early signs that a labour shortage is beginning to push wages higher. Industries in many places have complained that even unskilled workers are unavailable at current wages.

Most economists seem to think U.S. rates are still low enough to keep stimulating the economy. That means profitable businesses can still afford to borrow and expand, increasing demand for workers that are in short supply.

With the porous Canada-U.S. border, rising wages in the U.S. can flow through to Canada, as Canadian workers take up the slack created by U.S. shortages.

3. Increased inflation

Economic theory says a lower path of interest rates should allow not just wages, but prices to creep up — which can be both good and bad for Canadians. (Chris Helgren/Reuters)

Holding off on a U.S rate hike could well let a little more inflation creep into the economy.

Usually we think of inflation as a bad thing, because the prices of the things we buy go up. But there are a number of reasons why inflation can be good for Canadians, especially if wages keep pace with prices.

For one thing, higher inflation reduces the risk of deflation — falling prices — that many economists say discourages people from spending or from borrowing to invest.

Inflation reduces the amount heavily borrowed Canadians must pay back, because while the total debt is the same, you are paying it back in dollars that are worth less than your rising salary. On the other hand, people with cash assets lose, and inflation causes a small transfer of wealth from savers to borrowers and net spenders. 

4. Lower mortgage costs

Canadian houses are shown under construction last winter. A lower path of U.S. rates can also mean lower costs for Canadians who lock into five-year mortgages. (Mark Blinch/Reuters)

While the Bank of Canada benchmark rate — set by our own central banker Stephen Poloz — has an immediate effect on variable-rate consumer loans and mortgages, mortgages that are locked in for a longer period are more directly determined by international bond markets.

Generally, for a five-year fixed mortgage, lenders make their calculations based on what money is earning over a five-year period in New York — and those rates are, in turn, based on the Fed rate.

Lower five-year rates are reassuring to homebuyers who have been worried by previous Fed predictions that rates would be rising sharply. That means expectations of a slower path for U.S. interest rate hikes could help to stabilize the Canadian market for new and resale housing. 

5. Higher stock markets

It was another down day on markets yesterday, as companies warned of the effects of China’s economy on their balance sheets. (Brendan McDermid/Reuters)

At the end of last year, as stock prices were falling, a lot of market watchers, including U.S. President Donald Trump, blamed Powell for raising interest rates more quickly than necessary.

While keeping markets from falling is not officially part of the Fed’s mandate, a plunging market could hurt jobs and prevent the U.S. central bank from hitting its two per cent inflation target — two things that are part of its mandate.

A “dovish” tone — one that seems to expect rates to stay lower for longer — might boost share markets.

More recently, the long-term program now in effect to get rid of the bonds that the Fed bought to stimulate the economy using quantitative easing have been blamed for market sell-offs.

Ending the gradual and predictable process of unloading those bonds would, in theory, add a little more stimulus to the economy. But Powell may be reluctant to interfere with a system that as been working well ever since it was put in place by his predecessor Janet Yellen 16 months ago.

Follow Don on Twitter via @don_pittis 

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Real Estate

Do you know what kind of condo you’re buying?





(NC) Condominiums can come in all shapes and sizes. But it’s important to know that not all condos are created equal when it comes to warranty coverage.

Whether you’re buying a condominium townhouse, loft-style two-bedroom or a high-rise studio, they are all classified as condominiums if you own your unit while at the same time share access (and the associated fees) for facilities ranging from pools and parking garages to elevators and driveways, otherwise known as common elements.

The most common types of condos are standard condominiums and common elements condominiums. The determination of how a condominium project is designated happens during the planning stage when the builder proposes the project and the municipality approves it.

When you’re in the market to buy, you need to know how your chosen condo is classified because it affects the warranty coverage under the Ontario New Home Warranties Plan Act. Standard condominiums have warranty coverage for units and common elements, but common elements condominiums only have unit coverage.

How could this affect you as the owner? If your condo complex has underground parking and, for example, there are problems with leaks or a faulty door, the condo designation will determine whether there’s warranty coverage.

If your unit is a standard condominium development, then the common elements warranty may cover the repairs. If it’s a common element condominium development, then repairs might have to be covered by the condo corporation’s insurance, which could impact your condo fees or require a special assessment on all the owners.

To avoid surprises, you should have a real estate lawyer review the Declaration and Description attached to your purchase agreement to be sure that you know the designation and boundaries of the unit you’re looking to purchase. Find more information on the types of condos and their coverage at

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Real Estate

5 savvy renovations to make your kitchen look like new





(NC) The kitchen is the heart and focal point of any home. But if yours is looking a little tired, a few simple renovations can change the feel of the entire space.

Whether you’ve just moved in, have been meaning to update for years or are experiencing life changes, remember that a kitchen uplift doesn’t have to come with a huge price tag. These small-scale projects could be the change your kitchen needs:

  1. Brighten it up.Adding LED lights below your cabinets will brighten your backsplash and counter and provide a warm glow. Place your favourite containers below to act as focal points – those copper canisters that are hiding under the island and the marble coasters you couldn’t resist can now all be on display.
  2. Swap the old with the new.The backsplash is the first thing you see, so replacing it can be enough to give the space a whole new look. Try a unique shape or colour to change things up, like turquoise or patterned tiles, hexagon-shaped tiles or even a full slab of stainless steel.
  3. Rework what you have.People often think new cabinets are necessary for a kitchen reno, but a lot can be done with what you’ve got. Repainting the cabinets and switching out the knobs to chic new handles will do wonders for a makeover.
  4. Don’t hide away.Try adding some open shelving in an unused spot, such as above the sink or window, or next to the cabinets. Display your most beautiful dishes and add some decorative pieces to give the space a modern, airy feel.
  5. Add new materials into the mix.Changing the island to a butcher-block counter adds warmth and practicality.

Taking on a renovation can often feel overwhelming. But if you talk to your contractor about budgeting and spreading out payments through services like The Home Depot Project Loan, it can be easier than you think. The service allows you to finance any home projects, big or small and is available at locations across Canada.

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Real Estate

How to afford a home renovation that fits your life





(NC) Changing seasons always bring about the desire to update our living spaces. But your life stage and budget can influence what kind of upgrades you can make. Here are some tips to get you started.

Assess the investment. The first step is to gauge how much value your investment will bring, whether you’re looking to sell or grow into a family home. A common misconception among home owners is that all renovations will increase a home’s value; unfortunately, this is not always the case. It’s always a good idea to strategically renovate the space to fit your life plan and goals.

Plan for both long- and short-term value. As a homeowner, it is important to assess what kind of value items can contribute to your life plan. Searching for products that are energy efficient, like an eco-friendly washing machine or water filtration system, can help you save on your monthly bills. A long-term investment, such as hardwood floors or bathroom tiles, can spruce up a living space for years to come. While sometimes this require a larger budget, the project can be both appealing to future buyers and stand the test of time in a family home.

Create a renovation budget. Once you have a clear plan, you’ll need to create a budget to align with your financial goals. Always ensure your budget includes any interest you’ll be paying. Ask multiple sources for competitive quotes.

Use a payment plan. For those high-ticket investment items, consider using a payment plan. Payment solutions such as The Home Depot Project Loan can help with bigger renovations. This allows you to stick to your budgeting goals while using a flexible payment plan to make larger purchases more accessible.

Use DIY to offset costs. In addition to using a payment plan, taking on a few safe and simple renovation projects yourself is an easy way to offset renovation costs. Your local hardware store can help source materials and provide helpful tips to make those do-it-yourself projects, such as refinishing cabinets or sanding old hardwood floors, a breeze.

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