The Bank of Canada is widely expected to deliver a third consecutive interest rate cut on Wednesday as inflationary forces continue to cool on both sides of the Canada-United States border.Markets are also calling for the U.S. Federal Reserve to start its own easing cycle later this month, a move that economists tell Global News will help set its Canadian counterpart up for more rate cuts to come.
Derek Holt, vice-president and head of capital market economics at Scotiabank, tells Global News that he expects both the Bank of Canada and the U.S. Fed to deliver quarter-point rate cuts in September.The Fed is set to announce its next rate decision on Sept. 18, two weeks after the Bank of Canada.While the Canadian central bank is already 50 basis points into an easing cycle, its U.S. counterpart is playing catch-up.
Inflation has continued cooling for Canadians amid mild economic growth for much of 2024, allowing the Bank of Canada to start easing its benchmark policy rate from elevated levels in June. But concerns that inflation could reignite in the face of a still-hot economy south of the border were dampened by a particularly downbeat July jobs report in the U.S., cementing expectations that the Fed also needed to start cutting rates soon.
Fed chair Jerome Powell confirmed in late August that “the time has come” for a long-awaited policy shift.The remarks must have been reassuring for Bank of Canada governor Tiff Macklem, who was at Powell’s side at the Fed’s monetary policy conference at Jackson Hole, Wyo.Holt says that despite the Canadian central bank embarking on a rate-cut cycle ahead of the Fed, Macklem likely had a limited runway ahead of him.