Daily commentary & market insights, December 11, 2024

Canada’s Rate Cuts: A Gradual Path Ahead

Today’s press conference from BoC Governor Macklem shed light on the central bank’s reasoning behind its second consecutive 50-point rate cut. Here are my key takeaways:

No More Restrictive Policy: The BoC needed to take steam out of inflation which has been successful. With inflation now at 2%, Macklem emphasized that there’s no longer a need for a restrictive policy stance. This decision aligns with the softer economic outlook, with GDP growth slower than expected in Q3 and likely to remain weak in Q4. Additionally, lowered immigration targets for next year are expected to further dampen GDP.

Gradual Approach Moving Forward: While Macklem anticipates further rate cuts, the bank will take a more gradual approach, acknowledging that 175 basis points have already been cut since June. The goal is to assess economic conditions on a meeting-by-meeting basis, with a more measured path to 2025.

Impact of Tariff Threats: On the question of the U.S. tariff threats, Macklem stated that while tariffs create uncertainty, it’s impossible to base policy on potential future events. The BoC is focused on the data at hand, and while tariffs could hurt both the Canadian and U.S. economies if implemented at suggested levels, the bank’s 50-point rate cut was driven by current economic indicators.

Recession Concerns: While the Canadian economy is growing at a slower pace, Macklem noted that we have not seen the widespread layoffs typical of a recession. Businesses are still hiring, albeit at a slower rate, and although there’s some slack in the labour market, rate cuts should eventually help boost growth and improve employment conditions.

Today’s statements reinforce the BoC’s commitment to fostering gradual economic recovery while staying vigilant about emerging risks. A forward-looking strategy, but cautious and data-driven.