The current strength in hiring could be deceptive. Higher interest rates typically take 18 to 24 months to exert their full effect, according to the Bank of Canada.
It wasn’t supposed to be like this. Over the past year, the Bank of Canada and the U.S. Federal Reserve hammered their economies with the most aggressivehikes in four decades. Many economists expected the soaring rates to bring the Canadian and U.S. economies to a screeching halt.
This would not be good for stocks, because higher interest rates make bonds a more compelling alternative to equities. Higher interest rates also have a habit of pinching corporate bottom lines. You can find smart people on every side of this argument. For instance, the fine minds at giant money manager BlackRock argue that “central banks are deliberately causing recession by overtightening policy to tame inflation.”
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