As experts widely expect a 50-basis point cut from the Bank of Canada Wednesday, one chief market strategist says he anticipates turmoil next year coupled with austerity measures.
On Tuesday, Bloomberg News reported that economists and markets are expecting the Bank of Canada to cut its key policy rate by half a percentage point to 3.75 per cent during its rate announcement Wednesday.
Jim Thorne, chief market strategist at Wellington-Altus Private Wealth, said in an interview with BNN Bloomberg Monday that he also expects a 50-basis point cut, adding that a 75-basis point cut would “freak people out.” He also noted that the majority of gross domestic product (GDP) growth in the second quarter was from government spending.
“So they (the Bank of Canada) are below target and…the natural rate of interest is about 2.75 (per cent). They should be below 2.75 right now. Whether they go 75 (basis points), 50 or 25, we’re not going to feel the effect of those rate cuts until April of 2026,” Thorne said.
He added that he thinks the Bank of Canada is late in its efforts to bring down borrowing costs amid a broad contraction in the private sector.
Thorne said he is predicting slower growth and a “painful period” next year, saying austerity measures could be taken in Canada and the U.S.
“I would suggest that we can no longer sustain the government spending that we are doing right now, and we are going to have a pull back. And what was a tailwind for economic growth will be a headwind for economic growth,” he said.
“I think it will start with the election in the United States and it will eventually filter unfortunately into Canada. I don’t think the Trudeau government is willing to pull back. But I think if the polls are correct and Poilievre gets in, we’re going to see substantial cutbacks in government spending in this country.”
David Doyle, the head of economics at Macquarie Group, said in an interview with BNN Bloomberg Tuesday that he thinks September’s inflation data will give the Bank of Canada the “green light” to proceed with a 50-basis point cut.
“The BoC cutting and cutting aggressively here is just offsetting somewhat the embedded tightening from their previous rate hikes that occurred in 2021 and 2022,” he said.
In a statement to BNNBloomberg.ca Tuesday, Geoff Phipps, trading strategist and portfolio manager at Picton Mahoney Asset Management, said that over the past several months economic data has supported the view that the “policy risks from the Bank of Canada have skewed toward not being accommodative enough.”
“We believe it is more likely now that the BoC will have to make several 50 bps rate cuts to restore the overnight rate to at least neutral (mid to high two per cent range), and possibly below neutral,” he said.