Speaking at a financial forum in Toronto on Tuesday, Bank of Canada Governor Tiff Macklem took any mystery out of whether there will be a fourth consecutive rate cut on October 23. The short answer is, absolutely. The only question is by how much?“With the continued progress we’ve seen on inflation, it is reasonable to expect further cuts in our policy rate,” Macklem said at the IIF-CBA Forum in Toronto. Noting inflation has returned to the bank’s target of 2%, Macklem stuck to policy talk, saying the bank will monitor key data before making any decisions, “We need to stick the landing,” he said adding core inflation remains slightly above 2% and shelter cost inflation remains elevated but is starting to ease. The bank’s watch will include keeping tabs on economic growth factors to ensure the economy can absorb any slack. Macklem’s comments echo remarks made during the bank’s rate cut announcement in September which were, “Governing Council members…agreed that if inflation continued to ease as expected, that it was reasonable to expect that the policy rate would decline further.” The bank’s three previous rate cuts took the overnight rate to 4.25%. Market watchers agree a fourth cut will come in October, followed by another in December and likely another in January 2025.There is also speculation one of these cuts could be more aggressive, potentially a 50-basis-point reduction, depending on the evolving economic outlook and the severity of downside risks. While economic growth picked up in the first half of the year, some recent indicators suggest momentum may be weakening. While GDP growth rose 2.1% over the summer, most of the growth was driven by government spending, which rose 1.5% during the quarter. Sectors such as manufacturing, construction, and wholesale saw the largest declines, according to Statistics Canada. “Most of the growth surprise was driven by government spending and aircraft purchases, which should come back down to earth in the Q3 data,” James Orlando of TD Economics told Canadian Mortgage Trends (CMT). “Made worse is that the engine of Canadian growth, the consumer, has slowed the pace of spending in the face of still high rates.” “Some recent indicators suggest growth may not be as strong as we expected,” said Macklem, highlighting the importance of consumer spending, business hiring, and investment in the central bank’s upcoming monetary policy decisions. CIBC’s chief economist Avery Shenfeld suggests that shifting concerns to weakening economic conditions could prompt the central bank to move more quickly to ease rates. “With inflation soon to be vanquished, and real interest rates still at restrictive levels, there’s no logical reason for central bankers to move too cautiously to provide relief,” Shenfeld wrote in a brief. “While inflation remains above target, the Bank of Canada could find itself needing to deliver larger rate cuts to prevent an economic stall.” Of Canada’s six ‘Big Banks’ only CIBC and National Bank are currently forecasting the Bank of Canada’s policy will drop to 3.5% by the end of 2024. That would require an aggregate cut of .75% and with only two rate announcements remaining this year, at least one would need to be a .5% cut. “The weakening labour market in recent months has us lowering our target for Canada’s overnight rate by a further quarter point, to 2.25% by year-end 2025, which is about a half point below the neutral rate,” Shenfeld wrote. “But to stay out of a recession, we’ll also need to accelerate the pace at which the central bank will take us there. After a quarter point cut in October, we now see two half-point steps in December and January.”
Speaking at a financial forum in Toronto on Tuesday, Bank of Canada Governor Tiff Macklem took any mystery out of whether there will be a fourth consecutive rate cut on October 23. The short answer is, absolutely. The only question is by how much?“With the continued progress we’ve seen on inflation, it is reasonable to expect further cuts in our policy rate,” Macklem said at the IIF-CBA Forum in Toronto. Noting inflation has returned to the bank’s target of 2%, Macklem stuck to policy talk, saying the bank will monitor key data before making any decisions, “We need to stick the landing,” he said adding core inflation remains slightly above 2% and shelter cost inflation remains elevated but is starting to ease. The bank’s watch will include keeping tabs on economic growth factors to ensure the economy can absorb any slack. Macklem’s comments echo remarks made during the bank’s rate cut announcement in September which were, “Governing Council members…agreed that if inflation continued to ease as expected, that it was reasonable to expect that the policy rate would decline further.” The bank’s three previous rate cuts took the overnight rate to 4.25%. Market watchers agree a fourth cut will come in October, followed by another in December and likely another in January 2025.There is also speculation one of these cuts could be more aggressive, potentially a 50-basis-point reduction, depending on the evolving economic outlook and the severity of downside risks. While economic growth picked up in the first half of the year, some recent indicators suggest momentum may be weakening. While GDP growth rose 2.1% over the summer, most of the growth was driven by government spending, which rose 1.5% during the quarter. Sectors such as manufacturing, construction, and wholesale saw the largest declines, according to Statistics Canada. “Most of the growth surprise was driven by government spending and aircraft purchases, which should come back down to earth in the Q3 data,” James Orlando of TD Economics told Canadian Mortgage Trends (CMT). “Made worse is that the engine of Canadian growth, the consumer, has slowed the pace of spending in the face of still high rates.” “Some recent indicators suggest growth may not be as strong as we expected,” said Macklem, highlighting the importance of consumer spending, business hiring, and investment in the central bank’s upcoming monetary policy decisions. CIBC’s chief economist Avery Shenfeld suggests that shifting concerns to weakening economic conditions could prompt the central bank to move more quickly to ease rates. “With inflation soon to be vanquished, and real interest rates still at restrictive levels, there’s no logical reason for central bankers to move too cautiously to provide relief,” Shenfeld wrote in a brief. “While inflation remains above target, the Bank of Canada could find itself needing to deliver larger rate cuts to prevent an economic stall.” Of Canada’s six ‘Big Banks’ only CIBC and National Bank are currently forecasting the Bank of Canada’s policy will drop to 3.5% by the end of 2024. That would require an aggregate cut of .75% and with only two rate announcements remaining this year, at least one would need to be a .5% cut. “The weakening labour market in recent months has us lowering our target for Canada’s overnight rate by a further quarter point, to 2.25% by year-end 2025, which is about a half point below the neutral rate,” Shenfeld wrote. “But to stay out of a recession, we’ll also need to accelerate the pace at which the central bank will take us there. After a quarter point cut in October, we now see two half-point steps in December and January.”
