The Bank of Canada left its benchmark interest rate unchanged at 3.75% on Wednesday, a decision that was widely anticipated but still managed to generate debate about what it signals for the months ahead. Governor Tiff Macklem, in his post-announcement remarks, struck a tone that could be read as either cautiously optimistic or cautiously worried, depending on which sentences you chose to emphasize.
The employment picture is genuinely complicated right now. The May jobs report showed net job creation of 22,000 — a solid number on its face — but the composition of those jobs raised questions. Most of the gains were in part-time work and in sectors that tend to be more sensitive to economic cycles. Full-time employment in manufacturing and construction was essentially flat.
Inflation still above target
Core inflation, which strips out volatile food and energy prices, came in at 2.8% for May — still above the Bank's 2% target but moving in the right direction. The concern among some economists is that the last mile of disinflation is proving stickier than expected, particularly in services and shelter costs.
"The Bank is in a genuinely difficult position," said a former senior Bank of Canada official who now works in the private sector. "They've done a lot of the heavy lifting on inflation, but they can't declare victory yet. And they're doing this while the global trade environment is more uncertain than it's been in decades."
What markets are pricing in
Bond markets are currently pricing in one more rate cut before the end of the year, likely in October or December. That view could change quickly if the next few months of data come in stronger or weaker than expected. The Canadian dollar has been trading in a relatively narrow range against the US dollar, suggesting that currency markets are similarly uncertain about the direction of travel.
For Canadians with variable-rate mortgages, the hold means another month of waiting for relief that has been slow in coming. The average variable-rate mortgage holder has seen their monthly payment increase by more than $600 since the rate-hiking cycle began in early 2022. Many are watching the Bank's communications closely for any sign of when the next cut might arrive.