A high-level voice in the financial world has joined the chorus of those suggesting the Bank of Canada could implement ‘jumbo’ rate cuts this fall. That voice belongs to Tiff Macklem, governor of the Bank of Canada and a high-ranking member of the governing council that makes rate decisions. Canadian Mortgage Professional (CMP) reports Macklem hinted at the possibility of bigger rate cuts based on growing concerns around a cooling job market, falling oil prices, and slowing immigration, adding Macklem said in an interview with the Financial Times the bank could cut its rate by .5% starting as early as October 23 if the economy underperforms. The bank has cut its rate by .25% three times this year, taking it down to 4.25% “It could be appropriate to move faster on interest rates,” Macklem said, adding there was “enough slack in the Canadian economy to bring inflation back down to target.” “We don’t want to see more slack,” he added. There are red flags on financial flag posts. “Canada's labour market has shown signs of strain in recent months, with unemployment jumping to 6.6% in August from a low of 4.8% in 2022,” reports CMP. “This rise in joblessness has been sharper than in the US, where unemployment has increased only modestly to 4.2% from 3.4% during the same period.” The energy sector has also been hit by falling oil prices in recent weeks and although Canadian oil producers are accustomed to volatile price swings, Macklem said "a really sharp cycle" in prices could "have a big impact" on the overall economy. The bank’s three cuts since June have helped cool inflation, which now sits at 2.5%, close to the central bank’s target of 2% and the risk of inflation falling below target would be another reason to cut rates by more than originally planned, according to Macklem, reports CMP. “As you get closer to the inflation target, your risk management calculus changes,” he said in the interview with Financial Times. “You become more concerned about the downside risks. And the labour market is pointing to some downside risks.” Macklem said ongoing risks, such as high shelter costs and rent prices, are being monitored closely, as the Canadian rental market in particular has been squeezed by supply shortages and a surge in immigration, with rents rising nearly 9% year-on-year as of July. Macklem expressed hope that rent inflation would eventually ease, but he acknowledged "that could take some time." Adding to the mix is a rate announcement by the US Federal Reserve on Wednesday. Whatever the Fed decides it will affect Canada. “If Fed Chair Jerome Powell and company opt for the smaller cut the Canadian dollar could take a hit,” said Avery Shenfeld, chief economist at CIBC Capital Markets. CIBC expects a quarter point from the Fed Wednesday, followed by two 50-basis-point cuts. "It's hard to overstate the significance of the Fed giving the all-clear sign for inflation, particularly the significance for Canadian mortgage rates," said Robert McLister, analyst at MortgageLogic.news. A cut by the Fed signals that the US economy is weakening, and if this in turn slows Canada's output, "it's possible that markets aren't pricing in a big enough drop in our overnight rate," said McLister. “To stay out of recession, the central bank also needs to pick up the pace,” said Shenfeld, adding CIBC now expects the Bank of Canada to cut rates by .25% in October, and .5% in both December and January.
