balanced fund quarterly report

September 30, 2022

Economic Commentary

Persistent inflation remains the key driver impacting global financial markets. North American inflation levels showed signs of receding during the summer months, however, levels remain elevated and a concern for policymakers. U.S. inflation was 8.3% in August, down from the peak of 9.1% in June. Markets were expecting a lower level and, despite the improving trend, the absolute level was not well-received by the market. In Canada, inflation was 7.0% in August, down from the peak of 8.1%. Expectations were for a higher print, so expectations going forward have improved for Canada. Inflation in the Eurozone continues to escalate, with the September print coming in at a record 10.0%, the highest level since the euro was established over twenty years ago. Central banks have a 2.0% target for inflation, so there is still a long way to go before price stability is achieved.

As inflation levels remain elevated, both the U.S. Federal Reserve and the Bank of Canada have become more aggressive in their interest rate policy. The potential terminal rate keeps getting pushed higher, along with the expectation that the end rate will remain in place for an extended period of time. The Fed raised rates by 75 b.p. at each of its two meetings during the quarter while the Bank of Canada raised rates by 100 bp in June and 75 bp in September. On a year-to-date basis both central banks have raised interest rates by 300 bp. The number one goal of the Fed and the Bank of Canada is to rein in inflation. They are prepared to continue to aggressively raise interest rates even if it puts the economy into a recession. The European Central Bank, which had not raised interest rates during the first half of the year, shifted policy and raised rates by 125 bp during the quarter. With Eurozone inflation running at a record 10.0%, the ECB will need to continue to be aggressive on the rate front. Other global central banks have also joined the mix and tightened monetary policy during the quarter.

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