Was it One or Two?
We’re sure that everyone was up watching live with a big cup of coffee, but in case you missed the Bank of Canada announcement, the predicted “jumbo” cut has arrived. The overnight rate is now 3.75%, with the Prime Rate dropping to 5.95%. This marks four consecutive cuts, but it’s the first 0.50% reduction in the Bank’s easing efforts.
The Bank’s commentary will likely downplay how serious the economic situation is, but it’s clear policymakers are growing concerned that high interest rates are doing more harm than good. Governor Tiff Macklem emphasized the need for economic growth to avoid inflation dropping below the 2% target.
And this is where we need to adjust our mindset when assessing these rate cuts. Despite four reductions, the Bank of Canada’s policy is still pressing on the brakes while signalling the need for more economic fuel. It’s like trying to get a massive ship—or maybe a train—moving faster, but it’s not exactly agile. If we’re seeing signs of economic trouble ahead, we can’t turn things around quickly, just like the Titanic couldn’t avoid the iceberg. The Bank is at a fork in the road: balance inflation control with growth, while figuring out how much coal to stoke the jobs engine.
Yes, that was a nod to Planes, Trains & Automobiles—for those who remember the 80’s.
Our Take
Interest rates are still too high, but they’re headed down, with economists predicting another cut in December and more into 2025. The ‘bad news’ of weak economic growth and high unemployment seems to be a recurring theme, but for borrowers, the good news is that relief is here to stay, as rates continue to drop.
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