Bank of Canada Considers Rate Cut in Early 2024 Based on Data Analysis
The Bank of Canada and other central banks are nearing the end of an extraordinary interest rate-hiking cycle, prompting questions about when enough is enough. CIBC economists Avery Shenfeld and Ali Jaffery suggest that understanding the Bank's inflation forecasts requires examining the data they analyze. The traditional measure of the "output gap" has become less useful due to the challenges posed by the COVID-19 pandemic. Instead, the economists argue that Canada's labor market indicators, such as unemployment, job vacancies, and wages, have become more reliable indicators of excess demand or supply. In July, the unemployment rate rose to 5.5%, nearing the non-accelerating inflation rate of unemployment (NAIRU). CIBC forecasts that Canada's jobless rate will reach 6% by early 2024, potentially leading to rate cuts in the first quarter of that year.
It is important to note that CIBC's forecast is more dovish than the market's expectations, which anticipate another rate hike by the end of this year and no rate cuts in the first half of 2024. The decision on whether to hike rates in September will depend on the job market outlook. If the Bank of Canada proceeds with a hike, it would do so despite an outlook suggesting it may not be necessary.
Please note that this article contains forward-looking statements and carries certain risks and uncertainties.
Potential Impact of Bank of Canada's Rate Cut on New Businesses
The Bank of Canada's potential rate cut in early 2024, as suggested by CIBC economists, could have significant implications for new businesses. The end of the interest rate-hiking cycle could signal a shift in the economic climate that startups need to prepare for. Lower interest rates typically make borrowing cheaper, which could provide an opportunity for new businesses to secure loans for expansion or operational costs at a lower cost.
However, the rate cut is tied to the unemployment rate, a key indicator of economic health. A rising jobless rate could suggest a slowing economy, which could pose challenges for new businesses in terms of reduced consumer spending or increased competition for jobs.
It's also important to note the divergence between CIBC's forecast and market expectations. If the Bank of Canada decides to hike rates despite a potential need for a cut, it could signal a more aggressive stance on inflation control, which could impact businesses' cost structures and pricing strategies.
In this uncertain climate, new businesses must stay informed and agile. They need to understand the potential impacts of these macroeconomic changes on their operations and be ready to adapt their strategies accordingly.