The Bank of Canada is widely expected to lower its benchmark interest rate to 2.75% at its upcoming policy meeting next week, with more cuts potentially on the horizon.
Weak Job Growth Strengthens the Case for a Rate Cut
Canada’s latest employment data has added weight to expectations of a rate reduction. According to Statistics Canada, the economy added only 1,100 jobs in February, far below economists' predictions of 20,000. Despite this disappointing report, the national unemployment rate held steady at 6.6%.
This slowdown in job creation comes after months of stronger growth and has some analysts convinced that the central bank will need to take action. David Rosenberg, president of Rosenberg Research & Associates, stated that the odds of a rate cut at next week’s Bank of Canada meeting have surged from 50% to 85% following the latest employment data.
Job gains were concentrated in retail and wholesale trade (+51,000) and finance, insurance, and real estate (+16,000). However, professional, scientific, and technical services shrank by 1.6%, while transportation and warehousing employment dropped 2.1%—a sector that has already seen a 2.6% decline over the past year.
U.S. Tariffs and Business Uncertainty Weighing on the Economy
Some economists point to growing uncertainty around U.S. trade policies as a factor impacting hiring decisions. Nathan Janzen, assistant chief economist at RBC, noted that businesses in trade-sensitive industries are becoming more cautious, which could be leading to hiring slowdowns.
This economic uncertainty isn't just a Canadian concern. In the U.S., Federal Reserve Chair Jerome Powell has indicated that the Fed is treading carefully, balancing inflation concerns with potential economic weakness. While U.S. job growth remained steady in February, markets expect at least one rate cut from the Federal Reserve by mid-year if conditions soften further.
Market Odds Strongly Favor a Rate Cut
With the Bank of Canada’s next policy decision set for March 12, investors are increasingly convinced that a rate cut is coming. Money markets now reflect a 76% probability of a rate cut to 2.75%, up from 69% before the latest employment report.
Even more telling, the swaps market suggests that additional rate cuts could follow. The likelihood of another cut in April has climbed to over 90%, with some analysts projecting rates could dip below 2.5% by the end of 2025 if economic conditions remain weak.
What This Means for Mortgage Holders
For those with variable-rate mortgages or lines of credit, a rate cut could offer some relief on monthly payments. If the Bank of Canada moves forward with multiple rate cuts this year, we could see mortgage rates soften, providing more affordability for homebuyers and relief for those carrying debt.
As always, I’ll be watching the Bank of Canada’s decision closely. If you have questions about how these changes could impact your mortgage, feel free to reach out.
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