balanced fund quarterly report

December 31, 2022

Economic Commentary

Inflation remains stubbornly high, although recent data indicates that the level may have peaked and a downward trend has been established. Canadian inflation hit a post-pandemic high of 8.1% in June and then proceeded to decline modestly in the subsequent months. The annual inflation rate for November is 6.8%. In the U.S., the peak rate was 9.1% in June, with inflation now sitting at 7.1%. Despite this improving trend, inflation rates in both Canada and the U.S. remain considerably higher than the 2% target for both the Bank of Canada and the U.S. Federal Reserve. Inflation in the Eurozone did not peak until a few months later. The high print was 10.7% in October, with the most recent reading showing a rate of 10.0%. U.K. inflation hit a high of 11.1% in October before declining to 10.7% currently. Global inflation was the biggest driver of financial markets during 2022 as central banks reacted in aggressive fashion to combat the persistent trend.

Aggressive interest rate hikes by global central banks was a dominant theme in 2022, particularly in North America. This trend towards higher rates continued into the fourth quarter. The Bank of Canada raised its overnight rate twice, increasing rates by 50 b.p. at each of its two meetings. On a year-to-date basis the BOC raised rates by 400 b.p. The U.S. Federal Reserve was slightly more aggressive, increasing its overnight rate by a combined 125 b.p. during the quarter and 425 b.p. for the year. The pace of rate hikes in the U.S., however, moderated at the December meeting. After raising rates by 75 b.p. on four previous occasions, the Fed increased rates by only 50 b.p. at its December meeting. Markets perceived this as an indication that the Fed may be close to reaching its terminal rate and that future rate hikes would be minimal.

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