National Bank Financial has pared back its rate cut expectations for Canada and the United States in 2007.

In a research note, NBF suggests that it believes monetary easing will now begin later than it previously expected. “The Fed and the Bank of Canada have revised down their estimates of potential GDP growth,” NBF reports. “This is not good news for the bond market. The implications may be more worrisome in the U.S., where core PCE inflation, at 2.5%, is a full percentage point above the midpoint of the Fed comfort zone of 1% to 2%. In Canada, the core inflation rate of 2.3% is just above the Bank’s target of 2%.”

“This picture suggests that neither central bank will be in any hurry to cut rates,” it says. “Thus in response to the change in potential GDP, we now think the Fed easing campaign will start later than we initially expected. However, given our U.S. economic scenario of sub-par growth well below potential for an extended period of time, we still expect large rate cuts in 2007.”

“In Canada we now expect 75 basis points of rate cuts in 2007, 25 basis points less than in our last month forecast,” it concludes.