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Unemployment is rising faster than expected and the Bank of Canada is likely to cut interest rates early next year

2023-08-24
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  The Bank of Canada (BoC) is likely to put more weight on the weak state of the Labour market in its upcoming interest rate decision, setting the stage for a rate cut early next year, according to economists at Canadian Imperial Bank of Commerce (CIBC).

  Policy makers have raised rates in 10 of the last 12 meetings, taking Canada's (CAN) short-term borrowing costs to their highest level since 2001. But CIBC's Avery Shenfield and Ali Jaffrey said in a note to investors that if the unemployment rate continues to move higher, they may hold off on further rate hikes.

  The unemployment rate was 5.5 percent in July, and economists surveyed by Bloomberg expect it to hit 6 percent in the fourth quarter. CIBC economists say this is above the minimum unemployment level needed to contain inflation - which they estimate at 5.7 per cent.

  "Labour market indicators will and should be key to the direction of central bank policy." If the central bank raises rates in September, it won't be necessary from a labor market perspective. And some economic models suggest a rate cut is likely in the first few months of 2024."

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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