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Economic and Financial Outlook

Progress on Inflation Sets the Stage for 50 Basis-Point Cuts in Canada and the United States

September 19, 2024
  • Global economic growth remains quite modest, helping inflation ease further and prompting the major central banks to continue their newly minted monetary easing cycles.
  • Even though the Bank of Canada (BoC) has cut its policy rate three times in a row, the target remains above the neutral rate, which means it’s still restrictive. As inflation continues to moderate, we expect to see more rate cuts in Canada. The BoC should even announce a 50 basis-point cut at its next meeting given a more fragile economy. The Federal Reserve also opted for a 50‑basis-point cut at its September meeting in response to progress on inflation and risks of further deterioration in the employment market.
  • The US economy posted another solid increase in the second quarter of 2024. Since then, data releases have been more mixed overall, and have even come in below expectations. This is especially true for the job market. Although real GDP growth may have begun moderating in the third quarter, we don’t expect a major economic reversal, just slightly below-potential growth.
  • Canada’s economic engine continues to sputter. Growth has slowed while the unemployment rate has edged steadily higher. Although inflation is coming down toward 2% and the BoC has started cutting interest rates, higher costs will continue to strain household budgets. Planned reductions in newcomers to Canada should restrain economic activity as well. But possibly the most pressing concern over the outlook is the uncertainty around the US presidential election.
  • In Quebec, while the economy has come a long way since the beginning of 2024, the labour market continues to be hampered by the weakness of some businesses and a higher number of bankruptcies. The labour market is likely to worsen for another few months amid the financial challenges many businesses are facing. In the short term, we anticipate that the unemployment rate will top 6% before falling back below 5% by the end of 2025. Continued growth, controlled inflation and a series of interest rate cuts will be reflected in demand for workers next year.
NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.