During the late contraction to the end of contraction phase in the business cycle, the economy typically begins to show early signs of recovery, leading to shifts in monetary policy and interest rate trends. This period is marked by declining interest rates. Here's a breakdown of the conditions evident in this phase:

Economic Context:

As the economy contracts, unemployment may still be relatively high, consumer and business confidence is weak, and production is below potential output. These conditions prompt monetary authorities to adopt accommodative policies.

The central bank, such as the Bank of Canada, reduces interest rates to stimulate borrowing, investment, and spending, aiding in economic recovery.

Interest Rate Dynamics:

Falling interest rates are a hallmark of the late contraction phase. These declines occur as central banks aim to provide economic support and lower the cost of capital.

Lower interest rates tend to support a recovery in equity markets and encourage investment activity, setting the stage for the next phase of growth.

Yield Curve Observation:

During this phase, the yield curve, which may have inverted during earlier contraction stages, starts to steepen. This steepening is indicative of improving economic expectations.

Elimination of Tight Monetary Policies:

Tight monetary policies, which involve high interest rates to curb inflation, are generally not present in this phase. Instead, monetary easing is observed.

References to Study Documents:

Canadian Securities Course Volume 2, Chapter 13, "Fundamental and Technical Analysis," discusses the business cycle and its implications on market conditions​.

Volume 1, Chapter 4, "Overview of Economics," explains how interest rates influence the economy and describes their behavior during different phases of the business cycle​.