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Inflation/Deflation, Rate Cuts, & Policy - how does it fit with the Land Cycle? Inc. unique economic insights with Finance Guru Pete Wargent

This week, the Bank of Canada (BoC) made a significant move by reducing their cash rate by 25 basis points to 4.75%, marking the first among the G7 nations to do so.

 

The bold move was soon echoed by the European Central Bank, which also cut rates by 0.25%.

 

BoC Governor Tiff Macklem expressed optimism about the inflation outlook, stating,

 

“Recent data suggest the economy is still operating in excess supply. With the economy in excess supply, there is room for growth even as inflation continues to recede…”.

 

His words underscore a pivotal shift in monetary policy, suggesting a somewhat foolhardily belief that the inflation battle is nearing an end.

 

Christine Lagarde, the Governor of the European Central Bank, shared the same sentiments, noting that the inflation outlook had improved “markedly” and indicating a “strong likelihood” of entering a phase of rate reduction. Indicating more rate cuts could follow.

 

In response, U.S. bond yields fell by approximately 5 basis points across the curve.

 

The market is now anticipating two Federal Reserve rate cuts before the end of the year - a convenient shift in an election year.

 

The situation in Australia is not mirroring the same outlook, however.

 

Having not increased rates as aggressively as other central banks, the Reserve Bank of Australia (RBA) shows no immediate inclination to cut rates.

 

On the contrary, the RBA is still leaning towards a potential rate hike, not cut.

 

As reported by the Australian Financial Review,

 

RBA Governor Michele Bullock stated that the current 4.35 percent cash rate is appropriate.
She emphasized that rate cuts would only occur once the board is convinced that inflation is sustainably falling into the 2-3 percent target band.
If inflation remains high, the RBA is prepared to raise rates again, illustrating a cautious approach.
This divergence in monetary policy raises broader questions about the global economic landscape.
Despite current rate cuts, forecasts based on the land cycle and the Kondratieff wave predict rising inflation and increasing rates.
A rate cut now could bolster property prices and market confidence, aligning with bullish outlooks for 2025, but it does not suggest a period of reduced inflation.

 

Regardless, the broader question from our perspective, is how does this fit into the context of both the land cycle, and Kondratieff wave, when the forecast is for an increase in inflation – and along with it, rising rates?

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