Amid resurgent U.S. trade tantrums, the Bank of Canada’s next decision on interest rates will be another tricky one, and may see the central bank stay on the sidelines once again, CIBC World Markets Inc. says.
In a new report, the bank’s economists try to pick through the clues to figure out where the Bank of Canada will land at its next rate setting meeting on July 30 — a task that’s massively complicated by the latest cloud of U.S. policy uncertainty, headlined by the new threat of a 35% tariff on Canadian exports to the U.S.
“To be frank, the future of U.S. trade policy is as clear as mud. That’s inevitable when White House decisions seem to be based on the whims, and mood, of one particular man, and when it’s hard to ascribe changes to a well-articulated American objective,” it said — noting that the latest tariff threat revives false claims about fentanyl flowing from Canada into the U.S.
According to the report, the one through line that has persisted through all of the erratic U.S. policy nonsense is that there will be some sort of tariff increase at the end of the day.
While the latest threat might be a bluff, certain sectors could get exemptions, and there may be companies that can largely avoid the new tariff by complying with the existing trade agreement exemptions, fully free trade isn’t in the cards at the moment.
For the Bank of Canada, the combination of highly uncertain trade policy, coupled with the unexpected job gains for June reported in today’s labour market data, “is likely to be enough of an excuse to yet again delay further interest rate reductions at its July meeting,” the report said.
That pause will likely prove short-lived however. If trade turmoil continues to threaten economic growth, “there should still be ample reason for two more quarter-point cuts later this year, perhaps in September and December,” it said.