Bank of Canada will Keep Cutting Rates into Falling Loonie- w/ guest Ben Rabidoux
Dec 13, 2024
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Ben Rabidoux, a renowned real estate analyst at North Cove Advisors, sheds light on the Canadian housing market. He discusses the Bank of Canada's recent rate cuts and their implications amid a struggling labor market. Rabidoux highlights the decline in rents and the unprecedented construction supply. He also addresses the challenges posed by immigration surges and the need for an overhaul in the immigration system, linking these factors to broader economic dynamics in Canada.
The Bank of Canada is likely to continue cutting interest rates to support a faltering labor market and mitigate household financial crises.
Despite strong job creation numbers, the Canadian labor market faces underlying issues causing concerns about true employment health and wage growth.
Population growth and investment levels are crucial for economic performance, necessitating effective policies to sustain economic expansion and housing markets in Canada.
Deep dives
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Labor Market Dynamics
The podcast discusses the complex landscape of the Canadian labor market, highlighting that while job creation appears strong, the underlying economic health may be deteriorating. Recent statistics show an increase in unemployment claims, particularly among long-term unemployed individuals, indicating potential systemic issues within job availability and security. Despite positive job numbers, it’s suggested that many employment opportunities may not be fulfilling local demand, with concerns surrounding temporary foreign workers and labor market impact assessments contributing to a distorted view of employment health. This paradox raises questions about the sustainability of job growth and overall economic vitality.
Monetary Policy and Interest Rates
As the Bank of Canada navigates its monetary policy, there are concerns about the trajectory of interest rates given the current economic conditions and potential recession risks. Predictions suggest that the rates may need to be cut further to address upcoming mortgage renewals that could heavily impact household budgets in 2025. The discussion emphasizes the necessity for the bank to bring rates down to around 2% to prevent a household financial crisis and ensure economic stability. Nevertheless, uncertainty remains about how global factors, particularly the U.S. economy's performance, will influence Canadian monetary policy and the loonie's strength.
Public Sector Impact on Wage Growth
An examination of wage growth in Canada reveals that approximately 45% of the new jobs created are in the public sector, raising concerns about the reality of wage increases across the economy. Reports suggest that while nominal wage figures may appear strong, they are heavily skewed by public sector employment, potentially obscuring the true economic landscape. This creates a challenge for the private sector, which may be languishing beneath these inflated statistics, leading to a misrepresentation of the overall health of consumer spending. The unease surrounding the future of wage growth underscores the need for policies promoting sustainable job creation and economic resilience.
The Challenges of Population Growth and Investment
The podcast highlights the relationship between population growth, investment levels, and economic performance in Canada, emphasizing the critical role that effective policies play in fostering a robust economic environment. Concerns regarding a potential decline in population growth coupled with high immigration targets raise questions about the sustainability of economic expansion and housing markets. There is apprehension about foreign direct investment declining as the U.S. adopts a more competitive corporate tax structure, which could push Canadian businesses to seek opportunities south of the border. Addressing these intertwined issues is crucial for ensuring long-term economic stability and growth in Canada.
Bank of Canada slashes rates by another 50bps. The Labour market is getting worse. The Fed might be done cutting rates later this year but the BoC isn't. Rents continue to drop in major metros. Record supply under construction. Immigration system needs an overhaul as asylum claims surge.