The Bank of Canada is likely to place more weight on the weakening state of the labor market in its coming rate decisions, opening the door to cuts early next year, according to economists at CIBC.
Policymakers have hiked rates at 10 of their last 12 meetings, lifting Canada’s short-term borrowing costs to the highest level since 2001. But they’re probably done if the unemployment rate continues to move higher, Avery Shenfeld and Ali Jaffery of Canadian Imperial Bank of Commerce said in a report to investors.
Excess demand in Canada’s economy is rapidly dissipating, the economists say. A drop in employment vacancies is one clear indicator of a softer outlook. Governor Tiff Macklem has been “gun shy” about saying employment is too high to achieve the 2% inflation target, the economists said — though they acknowledge it’s difficult for policymakers to state openly that more people have to lose their jobs for prices to stabilize.
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