MNI INTERVIEW: BOC Set To Start Cuts In June - Senator Gignac
Rising unemployment and weak growth puts Macklem on a different path than Powell.
Conditions are already in place for the Bank of Canada to lower interest rates at the next decision in June and holding off because the Federal Reserve isn't ready to cut yet would risk major job-market damage, Senator Clement Gignac said in an interview after pressing BOC Governor Tiff Macklem at a committee hearing.
“It’s not too soon, and maybe it’s possibly even a bit too late to start to move, at a time that unemployment is already starting to rise and GDP per capita is declining,” said Gignac, a member of the Senate banking committee who's also served as Quebec's economic development minister and a special adviser to the federal finance department.
Gignac said Macklem's testimony late Wednesday indicated the Bank is willing to set monetary policy apart from the U.S., pointing to the Governor's comment Canada's shorter-term mortgages have helped better transmit tight monetary policy. Investors are divided on whether Macklem lowers the 5% rate at the June 5 decision or waits until July or later, and Gignac indicated a series of cuts are needed.
“Going to June it will be interesting and in the second half of this year how much the Bank of Canada can cut rates,” Gignac said. (See: MNI INTERVIEW: BOC On Track For June Cut- Ex Researcher)
MORE PEOPLE THAN GROWTH
Canada's inflation has slowed to within the Bank's 1% to 3% target range for the first time since the pandemic rebound and Gignac noted the Bank's real rate is the highest in the G7 at a time when unemployment has already climbed by about a percentage point.
Macklem told lawmakers yesterday the time for a cut is getting closer but he needs clear evidence trend inflation will settle down. He reiterated Thursday morning he can cut rates before inflation returns all the way back to target but the pace likely won’t be rapid and borrowing costs won’t return to where they were before the pandemic.
If unemployment climbs another percentage point to around 7% that will open up debate about the Bank's single 2% inflation goal and whether a dual mandate is needed, Gignac said, pointing to a federal election due by late next year. (MNI INTERVIEW: BOC Seen Cutting In June As Economy Fades-BDC)
“The unemployment rate could become a bigger issue than the inflation rate in the coming months, indeed into the next federal election,” he said. “They reassure us that they don’t see a recession, but if you use GDP per capita definition, we are in recession.”
Canada's economy grew at a 2.5% annualized pace in the first quarter, according to a flash estimate from the federal statistics agency, but that comes with population gaining at the fastest pace in half a century.