Here’s Why History Repeats Itself with Interest Rates

August 9, 2022

Key points:

  • Over the past 30 years, every rate hike cycle was followed by steep rate drops
  • Interest rates are likely to trend back downwards instead of skyrocketing as we enter a recession

Interest rates are bound to trend back down

Interest rates are on the rise, but based on history, they are unlikely to take off and completely skyrocket. Over the last 30 years, every major rate hike cycle was followed by a big drop to rates and a recession. Here’s a bit more detail on why history is bound to repeat itself.

Don’t feel like watching? Find the full transcript below!

Chris: [00:00:03] History has the most unusual way of repeating itself. So maybe we can look back at past interest rate hikes, hike, interest rate hike, cycle – So maybe we can look back at past interest rate hike cycles of the Bank of Canada to determine where we are headed to the end of 2022 and beyond for interest rates.

Rate hike cycles are followed by steep declines

Chris: [00:00:30] Unfortunately, I have to show you guys a graph. I know, I know. But listen, it’s like a picture. It’s worth a thousand words. So what we’re looking at here is over a 30 year period from July 1992 to July 2022, the Bank of Canada overnight lending rate. You can see the changes both up and down and what jumps out, I think it’s pretty obvious, every time that the Bank of Canada has gone through a rate hike cycle, it was followed almost immediately thereafter by a steep, not just a little, a steep decline to the overnight lending rate.

Chris: [00:01:08] Now, why is it that after every rate hike cycle there was that steep drop? Well, if you were to overlay recessions on top of this graph, we would see that those drops are all correspond to the big recessions that we’ve had over the last 30 years. And this is just a natural economic cycle. So if we’re going to look at history repeating itself, this is setting up to be a classic example of rate hikes followed by recession. And if we are trying to anticipate where interest rates are headed into 2023 and beyond, I think it’s safe to look at this and assume or take an educated guess that interest rates are going to trend back downwards, and we aren’t going to see rates take off like a runaway freight train like many are anticipating.

Need more help or information?

Chris: [00:02:04] My name is Christopher Molder. I am a Toronto based mortgage broker. And if you have any questions about how current economic circumstances are going to impact you, your mortgage or your future purchase, please feel free to reach out. I’m just a phone call or an email away until next time. Bye for now.

You can book a call directly into my calendar below, or get in touch with me here.