The BoC is ‘far more optimistic than us’: TD’s Beata Caranci on where economic growth, interest rates, real estate and stocks are headingWith the Bank of Canada and Bay Street economists expecting economic growth to improve and normalize in 2025, investors are focusing on the speed and strength of the recovery. However, the latest economic data could be signalling trouble ahead for the economy if the Bank of Canada maintains a restrictive monetary policy for much longer.
I think they’re a little gun shy because they’re worried probably with what they’re seeing in the U.S. In the U.S., they had several months of good data and then the next three months it went in the other direction. They definitely don’t want to have to do a U-turn. They’re clearly leaning on the side of waiting until it’s beyond a shadow of a doubt.
Recently, Fed Chair Powell indicated that interest rates are likely to remain higher for longer. What is the probability that we don’t see any rate cuts this year in the U.S. or perhaps just one, especially with the U.S. election coming in November? They’re going to be worried about any quick recalibration in housing and consumer demand. The one thing that Canadian households have that the U.S. doesn’t have is a higher amount of excess deposits that were not spent after the pandemic. The U.S. drew this down quickly, which is why they have higher consumption profiles than us. We’ve presumed that Canadians are anticipating or are worried about upcoming debt costs, so they’re keeping the powder dry.
A couple of things to keep in mind is when we forecast commodities, we’re doing an average for the quarter. You have to think through the whole quarter and there’s a lot of volatility related to commodities. That’s one thing to keep in mind.