The Bank of Canada faces one of its trickiest decisions in recent memory this week. On paper, the latest jobs and inflation numbers suggest the central bank should hit pause on further easing. Yet, when you zoom out and look at the broader economic picture, another rate cut still makes sense.
Let’s start with the data that’s giving policymakers headaches. September’s jobs report surprised almost everyone, with roughly 60,000 new positions added hardly a sign of a struggling economy. Meanwhile, inflation ticked up to 2.4 percent, and the Bank’s preferred core inflation measures are still sitting north of three percent. Under normal circumstances, these numbers would be flashing “no rate cuts” in big, bold letters.
But these are not normal times.
The truth is that Canada’s labour market isn’t as healthy as that one-month surge suggests. Since January, job growth has been tepid, and the unemployment rate remains stuck above seven percent. Businesses are holding back on hiring, nervous about the ripple effects of U.S. trade uncertainty. When automakers like Stellantis and GM start moving production south of the border, it’s a sign of deeper stress in the system.
As BMO’s chief economist Doug Porter put it, this is an “exceptionally challenging” moment for the economy. He and many others at BMO are still expecting a second straight rate cut on Wednesday down another quarter point from the current 2.5 percent. The logic is simple: the economy needs some breathing room.
Yes, inflation has proven stubborn in places, but even the Bank of Canada itself has downplayed its core inflation metrics recently, suggesting that inflation is closer to 2.5 percent right now. That’s not a level that should stop policymakers from offering more monetary support, especially when growth is fragile and external risks from trade tensions to slowing global demand are mounting.
RBC’s economists, Nathan Janzen and Claire Fan, make a fair point too: the Bank’s own business outlook survey shows that inflation expectations are drifting lower. That gives policymakers a bit more flexibility to ease without fear of fueling runaway prices. Still, they caution that any further cuts beyond this one would likely require the economy to deteriorate more sharply than expected a reminder that rate cuts are a short-term fix, not a long-term cure.
Fiscal policy will need to play its part as well. The federal government’s fall budget, due on November 4, could bring some much-needed spending to support sectors hurt by U.S. tariffs. Ideally, fiscal and monetary policy will finally be pulling in the same direction, not working at cross-purposes.
In the end, a second consecutive rate cut isn’t about ignoring the inflation or jobs data it’s about recognizing what lies beneath the surface. Growth is sluggish, business confidence is shaky, and Canada’s export-heavy economy remains vulnerable to forces it can’t control.
If ever there were a time for the Bank of Canada to stay the course on easing, this is it. A small, steady push from lower interest rates paired with smart government spending might just be what keeps the economy afloat in these uncertain waters.
