Rate cuts will give Canadian economy the boost it needs, says TD economist

BoC's divergence from Fed will provide economic growth relative to the US

Rate cuts will give Canadian economy the boost it needs, says TD economist
Steve Randall

While Canadians continue to speculate about whether we’ll see another rate cut from the Bank of Canada next month, south of the border the wait for the Fed goes on.

And the decision to start reducing Canada’s interest rates will give the economy a boost relative to the U.S. according to TD Economics’ director and senior economist James Orlando, CFA, although he is not certain that the BoC will cut again in July. Following this week’s CPI print he and his team still expect a pause until September.

“We're expecting further cuts, getting to 2.25% by the beginning of 2026. So that's a big difference, getting to around 2% interest rates from 4.75%right now, that's a big change. That's a big shift in the interest rate dynamics in Canada,” he told BNN Bloomberg.

Orlando noted that because the BoC has begun its cutting cycle, there should be a narrowing of the economic growth gap with the United States and hopefully an easier time for millions of households.

“We’re going to be able to have less of our disposable income go into mortgage payments,” he said. “That, in effect, will be able to close a little bit of this gap between Canada and the United States because we have just been suffering under the weight of these high rates for so long.”

Housing affordability

Orlando told BNN Bloomberg that greater economic certainty should be ahead and benefits from business investment are also incoming.

However, on housing affordability he remains skeptical that the Canadian government can meet its aim to build 3.9 million new homes by 2031 to help bring down prices.

“We don't think that they're going to be able to achieve their targets with respect to how much housing they need to get more affordability in Canada. So, it's not like we're thinking affordability is going to improve,” he said.

While that isn’t what those struggling to get on the Canadian housing ladder want to hear, there is still an overall benefit to the economy with escalating investing in home building giving GDP a boost.

A recent KPMG in Canada poll of business leaders put housing costs and supply as Canada’s biggest economic threat.