The Bank of Canada has two more interest rate announcements this year.
One later this month and another in December. Although the U.S. economy has recently showed signs of strength, the BoC has said it is willing to diverge from the Federal Reserve on monetary policy when Canadian economic conditions warrant it.
We know that the Canadian unemployment rate is 6.6% in the most recent report. This is at a seven year peak. And I bet the upcoming data for September will show it climb to 6.7%. I wouldn’t be surprised if we see a 0.50% rate cut in the next BoC meeting.
While our unemployment rate has been rising, the U.S. rate has been falling. One reason for the divergence in the labour market is due to a much higher immigration target in Canada. This has primarily fuelled unemployment for immigrants and young workers. To help solve this problem, Prime Minister Justin Trudeau announced his government will reduce the amount of people Canada will take in going forward. But I think it’s already too little, too late.
Businesses are not hiring as much as before with job openings down (yellow line in graph below.) Meanwhile, the unemployment rate bottomed in 2022 (blue line) and has been steadily climbing since.
So even though our neighbour to the south is doing okay for now, I wouldn’t count on them to take us out of a recession. This is why I have added some bonds to my portfolio this year. If the economy does weaken, we will likely see more rate cuts. Even the anticipation of lower rates should boost the price of bond funds, as we’ve seen over the last 6 months or so. More recently bond yields have risen again, but I expect this to be a temporary trend before reversing again into next year.
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Random Useless Fact:
The world’s most expensive safe is Dottling’s Narcisuss. It weighs 800 kg, and costs $336,000 USD.
