12/07/2024
The Surge In Canadian Unemployment Keeps Another Jumbo Rate Cut In Play In December
Job creation was more substantial than expected, but 90% of the growth was in the public sector. Despite this, the jobless rate surged to 6.8%. The good news is that wage inflation ticked down sharply.
Bottom Line
Monetary policy remains overly restrictive as the 3.75% overnight policy rate remains well above the inflation rate. We expect the overnight rate to fall to 2.5% by April or June of next year. This should continue boosting housing activity, which increased significantly in October and November.
Last week's GDP data release showed that Canada's third-quarter GDP grew a mere 1.0%, well below the Bank's downwardly revised forecast of 1.5%. This, in combination with today's employment report, bodes well for the Bank of Canada to consider cutting rates by another 50 bps seriously. However, given how aggressive they have been compared to the Federal Reserve, which will undoubtedly cut rates by only 25 bps in late December, they could be satisfied with a 25 bp cut for now.
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