Despite these positive indicators, the potential for rate cuts by the Bank of Canada is complicated by the US Federal Reserve’s current stance.
Fed Chair Jerome Powell recently indicated that US officials are not yet convinced that inflation is consistently moving towards their 2 percent target, suggesting a more cautious approach that may influence Canada’s monetary policy decisions.
Economists warn that significant rate cuts by the Bank of Canada could weaken the Canadian dollar, potentially reigniting inflation due to the cost of imports priced in US dollars.
Doug Porter, chief economist at BMO Capital Markets, noted, “With almost all major measures of inflation now tucked just below 3 percent, and short-term trends even softer, and the jobless rate above 6 percent and rising, the domestic case for rate cuts is strong.”
However, he has revised his forecast for Bank of Canada rate cuts in 2024 down to three from four, anticipating a policy rate of 4.25 percent by year-end.
