Bank of Canada Cuts Rate to 4.25%, Easing Inflation Worries

• The Bank of Canada reduced its key policy rate to 4.25% for the third time due to easing inflationary pressures.
• Canada’s inflation rate dropped to a 40-month low of 2.5% in July but remains above the BoC’s 2% target.
• U.S. job vacancies in July fell to 7.673 million, marking the lowest level since early 2021 and missing market forecasts.

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The Bank of Canada (BoC) lowered its key policy rate by 25 basis points to 4.25% on Wednesday, its third consecutive rate cut, reported by Wu Blockchain. This move was prompted by easing inflationary pressures, with Canada’s inflation rate falling to a 40-month low of 2.5% in July.

While this decline is positive, inflation remains above the central bank’s 2% target, and the BoC forecasts an annualized rate of 2.8% for the third quarter. Additionally, Canada grapples with economic challenges, including a higher unemployment rate of 6.4% and concerns about housing costs.

Canada’s Economy Faces Slow Growth and Rising Unemployment

The BoC’s decision to cut rates reflects persistent worries about Canada’s economic performance. Growth has been sluggish for several quarters, and the unemployment rate has climbed nearly two percentage points from its record low two years ago. These rate cuts aim to stimulate spending and ease mortgage costs for Canadians.

Prime Minister Justin Trudeau stressed the need to make life more affordable, highlighting housing affordability as a key issue. “This is a strong signal that we’re going in the right direction,” Trudeau posted on social media, expressing optimism despite the ongoing economic challenges.

BoC’s Rate Strategy Sparks Debate on Future Cuts

Taylor Schleich, a rates strategist at the National Bank of Canada, characterized the BoC’s recent rate cuts as a strategy to alleviate financial burdens on homeowners. He stated that their plan is to continue with 25 basis point cuts. Schleich noted that decisions on further rate cuts might become more nuanced next year as rates continue to drop.

Meanwhile, global trends also influence the BoC’s actions. Expectations are high that the U.S. Federal Reserve will reduce borrowing costs for the first time in four years at its upcoming meeting on September 18. Other major central banks, such as the Bank of England and the European Central Bank, have already begun lowering rates in response to easing inflation.

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Moreover, Wu Blockchain reported that U.S. job vacancies in July fell to 7.673 million, the lowest since early 2021, missing market expectations of 8.10 million. The U.S. factory orders saw a 5% monthly increase in July, marking the largest rise since July 2020. However, the labor market faces headwinds as job openings declined in sectors like healthcare, state and local government, and transportation.

The Job Openings and Labor Turnover Survey (JOLTS) data underscored an ongoing adjustment in the labor market. Job openings dropped by 237,000 in July, indicating shifts in employer demand. While some sectors saw job growth, others faced declines, painting a mixed economic outlook.