OTTAWA — The Bank of Canada wants to get the economy moving again, and some members of its Governing Council are concerned that weak labor market conditions could hamper that process.
OTTAWA — The Bank of Canada wants to get the economy moving again, and some members of its Governing Council are concerned that weak labor market conditions could hamper that process.
This is evident from the recently published summary of the central bank’s deliberations, which details the discussions ahead of the interest rate decision on July 24.
“Given the slack in the labor market, some members expressed concern that further weakness in the labor market could delay the recovery in consumption and thus put downward pressure on growth and inflation,” the summary said.
As consumer price growth continues to slow, the central bank is paying greater attention to the risks associated with falling below its inflation target of two percent.
The Bank of Canada has signaled that it will continue to cut interest rates as long as inflation continues to decline as it forecasts.
The key interest rate is currently 4.5 percent. The next interest rate announcement is scheduled for September 4.
“Canadian central bankers felt a greater urge to cut interest rates in July,” said Royce Mendes, managing director and head of macro strategy at Desjardins, in a note to clients.
“While the Bank of Canada still believes in a recovery in consumer spending, its officials are also aware that this forecast is significantly at risk from upcoming mortgage renewals and ongoing weakness in the labor market.”
The Canadian economy has avoided a recession, even though interest rates are weighing on consumer and business spending.
Other indicators, however, suggest that the economy is on shaky ground. On a per capita basis, the economy even appears to have contracted, the Bank of Canada noted in its summary.
The document reiterated that the bank’s decision to cut its key interest rate last month was partly based on a desire to stimulate economic growth.
The boom in the labor market that job seekers experienced in the wake of the COVID-19 pandemic has now subsided significantly.
Employers no longer report such severe labor shortages, and workers entering the labor market have fewer choices.
This led to a steady rise in the unemployment rate, which reached 6.4 percent in June. Statistics Canada is expected to release its July labour force survey on Friday.
“We now expect the Bank of Canada to cut rates at each of its remaining decisions in 2024 before reaching our final rate forecast of 2.25 per cent at the end of 2025,” Mendes said.
“We no longer expect Canadian central bankers to pause in December, as we now expect the Fed to also make three consecutive 25 (basis point) rate cuts over the remainder of the year.”
This report by The Canadian Press was first published August 7, 2024.
Nojoud Al Mallees, The Canadian Press
