Laurentian: Hard Landing Needed To Justify Cuts Starting 2Q24

Laurentian offered one of the more hawkish takes to yesterday's BoC decision and suite of communications.

• “Our current base case scenario of prudent short-term easing beginning in June 2024 is already at risk of not happening because of renewed disruptions in global shipping trade. In our view, a hard landing would have to become the base case scenario to justify the pricing of policy rate cuts in 2024Q2 at this stage.”
• "The Canadian economy has been stagnant since mid-2023, enough to transition the situation from exceeding demand to modest excess supply. Accordingly, the risk of additional hikes has diminished, although it has not completely disappeared."
• "The BoC has shifted to a different, subtly less severe form of hawkishness to begin 2024. The main discussion within the BoC leading to this decision was not about the necessity of hiking or not. The focus was on how long the policy rate will need to be held at 5.00% to restore price stability.”
• “Relative to the MPR projection of 3.2% total CPI inflation in 2024Q1, below the 3.4% December figure, we see inflation jumping above 3.5% by 2024Q2. This is due to the renewed squeeze in global shipping trade caused by the Red Sea crisis and the severe drought cutting ship traffic in the Panama Canal. If one of these factors stays in place for another month or worsens, markets will have to go back to the drawing board and squash hopes of rate cuts this Spring and early Summer."