Central banks

give governments and financial advisers a reason to cheer when they lower rates. We all saw how this played out favourably when the global COVID playbook was enacted. That’s when central banks around the world lowered rates to effectively zero, while governments sent out billions of dollars to citizens to avert both an economic crisis, and a public health one. The plan worked — perhaps too well. Because decreased rates lower debt servicing costs, it ended up shifting everyone’s perspective to make them feel more bullish than they otherwise might have been. I call this phenomenon “bullshift” and wrote a book about it using the portmanteau as the title.

That altered perspective is useful to governments and financial advisers when there’s a rate cut: It’s good for business, and votes, when people feel optimistic and are spending and investing. Rate cuts also make debt repayment cheaper for governments but signal a weak economy and can encourage

inflation

and asset bubbles. The current U.S. government has pushed for rate cuts despite the more than $38-trillion accumulated American debt, which is a serious threat to economic growth and sustainability. Canada faces similar, albeit more muted, challenges with more than $1.4 trillion of federal debt.

By encouraging central banks to lower

interest rates

, or keep them lower, politicians foster a potentially unrealistic sense of optimism among voters and investors. People like lower rates because it lowers their own debt servicing costs. But we have a large swath of the population awash in debt and few seem concerned that the circumstance may ultimately grind the economy to a standstill.

Whether a politician or a financial adviser, anyone who sees this as acceptable as long as rates are low is not a good steward of wealth and welfare. It seems there are no fiscal conservatives left anywhere. Genuine stewardship involves making responsible decisions and a willingness to be the bearer of bad news.

Where are the cheerleaders when there’s a central bank hike? A hike is supposed to mean the economy is finding its footing and no longer in need of stimulation. If the economy were a patient whose infection is getting better, hiking rates would be like taking that person off antibiotics. The patient may feel that more antibiotics are better but the doctor knows there are consequences to overprescribing antibiotics.

The Canadian and U.S. central banks have target inflation rates, generally around two per cent. Canada’s annual inflation rate increased to 2.2 per cent in October, but remember that it was only 1.9 per cent in August. Despite interest rates in the

Bank of Canada

’s target range, it lowered rates to 2.25 per cent in October, though the BOC held rates steady Wednesday.

Meanwhile, as of September 2025, the annual inflation rate in the U.S. was about three per cent, which was a slight increase from the previous month. Despite inflation being higher than in Canada and despite America hitting all time highs in stocks, real estate and debt levels, the

Federal Reserve

chose to cut rates this week. That tells you all you need to know.

In terms of investing, the main point here is that market cycles don’t function the way they used to because central bankers are more willing than ever to do unconventional things to keep the economy moving along. I can’t remember the last time there was serious discussion of lowering rates when inflation was at three per cent and climbing. Certainly, this climate doesn’t resemble the distant past when the North American overexpansion of manufacturing capacity created product gluts, lower credit demand and prices and, eventually, layoffs and economic contraction. Instead, the expansions seem to last longer and the U.S. stock market run is heading into record territory, with nosebleed stock valuations, partly because of easy money. Some economists suspect that central bank intervention has contributed to the reason we haven’t seen a significant downturn yet.

The fact is most investors are not sufficiently pre-conditioned to endure long-term market declines. They expect declines to be sharp, but brief. They also expect those declines to occur because of broad macroeconomic factors that might be mitigated by swift, purposeful intervention. With globalism just about dead and mercantilism on the rise, we may need to widen our lens to assess the current circumstances.

The dot-com bubble of 1999 developed out of massive debt financing, while the current artificial intelligence euphoria, which many financial commentators are calling a bubble, features stronger internal cash flows. That’s the good news.

Here’s the bad. The main difference between then and now is that in 1999 government debt levels and debt-to-GDP levels were far more benign and the world was still experiencing an expansionist “peace dividend,” with freer trade and fewer wars. Today, barriers are being erected everywhere you look, wars are being fought, and there is no room for a margin of error on the fiscal side. The demographic backdrop is considerably more dire, too, with an aging population.

After 1999, the Nasdaq took about 14 years to recover after an inflationary period. Today, it is likely that most people, especially retirees, couldn’t wait more than seven years, or half that long, to get back to where they started without destroying their financial plans. It now looks as though something similar may be on our doorstep, only this time the levers to overcome the challenges will likely be less effective. And why? Because these levers have been used too liberally in the past. Thus, “bullshift” monetary policy can only go on for so long before reality sets in.

Investors would be well-advised to temper the bullishness that any advocate of rate cutting wants them to feel with a more clear-eyed approach to the world as it is — not a pessimistic view, but not a blindly optimistic one, either.

  • Stock markets, like people, operate beyond our control. What is our task then?
  • This December, free up some time by ignoring these investing issues

John De Goey is a Portfolio Manager with Designed Securities Ltd, regulated by the Canadian Investment Regulatory Organization and a Member of the Canadian Investor Protection Fund.