The Bank of Canada has been aggressively raising interest rates to cool the economy and stave off a recession. Since March 2022, it has increased its key lending rate 10 times, from 0.25% in March 2022 to a 22-year high of 5.00% in July 2022. It looks like the interest rate hikes are working, and after some weak economic data, it appears as though the Bank of Canada could be hitting pause for this rate cycle.
Canada’s economy unexpectedly lost 6,400 jobs in July as the unemployment rate climbed to 5.5%, which is the third straight monthly increase. Economists were expecting the Canadian economy to add 25,000 jobs. The increase in the unemployment rate was expected.
The unexpected job losses come after a surprise gain of 59,900 jobs in June, which came on the heels of 17,300 job losses in May. This see-saw suggests the Canadian economy is starting to feel the effects of the 475 basis points of rate hikes from the Bank of Canada since early last year.
This slow winddown of the economy is in keeping with historical economic data that shows the effects of interest rate hikes can sometimes take a year or 18 months to play out.
Economists believe that the big job losses in July mean the Bank of Canada could be done with interest rate hikes in this economic cycle. The Bank of Canada meets next on Wednesday, September 6.
There is a caveat though. The central bank has said rate hikes, pauses, and cuts would be data-driven. The unexpected job losses in July suggest rate hikes could come to an end. But, if Canada’s next gross domestic product (GDP) reading comes in hotter than expected, the central bank could raise rates again. It looks unlikely, though.
The Canadian economy has been losing steam. After increasing 3.1% in the first quarter, second quarter GDP is expected to have cooled significantly. The economy did grow in April and May but at a much slower pace.
Statistics Canada expects the economy to contract 0.2% in June. The bearish sentiment is justified since manufacturing, retail, and wholesale sales fell by 1%, 0.2%, and 3.7% respectively in June. Overall, second quarter GDP is projected to be at around one percent.
A pause in the Bank of Canada’s interest rate hikes would be a relief for both the stock market and Canadians. The latest Consumer Price Index report showed inflation inched up to 3.3% in July, from 2.8% in June; moving further away from the Bank of Canada’s target of 2.0%.
If you want to know how further interest rate hikes or a pause will impact equities, contact the trading experts at Learn-To-Trade.com.
Learn-To-Trade.com is Canada’s leading and oldest provider of stock market trading courses. Over the years our trading professionals have taught tens of thousands of investors, of every skill level, how to trade more confidently and profit more consistently.
At Learn-To-Trade.com, we also understand that investors learn at their own pace and/or may want to spend more time with a certain investing strategy. That’s why we provide a unique, Lifetime Membership that allows you to re-attend any part of the program as often as you’d like.
To learn more about Learn-To-Trade.com’s stock market trading courses, contact us at 4165105560 or by e-mail at info@learn-to-trade.com.
Related: Bank of Canada Holds Interest Rate at 5% as Economy and Corporate Earnings Slow
The U.S. is the world’s largest economy; however, cracks are beginning to appear. Typically, that…
The TSX, Canada’s main stock index, remains near record highs even as the Canadian economy…
The U.S. Federal Reserve increased its benchmark interest rate on September 16 for the first…
Canada’s inflation rate remained unchanged in August, but a sharp increase in energy prices in…
The Bank of Canada has kept interest rates unchanged, but investors are increasingly betting that…
Despite ongoing geopolitical uncertainty, trade tensions, and concerns about future interest rate decisions, North American…