Bank of Canada Meeting Minutes: Concerns about future consumer spending, job market may impact rate cut prospects

According to the meeting minutes released on Wednesday (August 7th) as reported by the Smart Finance app, the Bank of Canada expressed concerns last month about the possibility of consumer spending in 2025 and 2026 being much lower than expected before deciding to cut interest rates. The meeting minutes showed that on July 24th, the Bank of Canada lowered its key overnight rate by 25 basis points to 4.5%, marking the second rate cut in two months. The central bank stated that it is increasingly concerned about the possibility of economic growth falling below expectations. Last year, in order to curb inflation, the Bank of Canada raised interest rates to a 23-year high of 5%. The meeting minutes mentioned, "Given that many households may refinance at higher rates, consumer spending in 2025 and 2026 may be much lower than expected." Most mortgages in Canada are for a five-year term, and around CAD 300 billion in mortgages will be up for renewal next year at higher rates, raising concerns among economists about growth. Last week, the disappointing U.S. jobs report raised concerns about the possibility of Canada's largest trading partner slipping into a recession, leading to a stock market decline and bond yields hitting multi-month lows. This has led the money market to almost fully expect the Bank of Canada to cut interest rates again next month, compared to over 60% expectation previously. Investors anticipate two more rate cuts this year. The Bank of Canada stated that lowering borrowing costs could stimulate consumer spending, but "many households will still face significant debt servicing costs," which could dampen a rebound in consumer spending in the coming years. With economic growth lagging behind population growth, there is oversupply in the economy and a weak labor market. The meeting minutes stated that this could further weaken the labor market, dampen consumption, and put downward pressure on growth and inflation. The minutes noted, "Council members unanimously agreed to clearly convey that they will weigh factors that could pull inflation below target against those that could keep it above target." The six-member council indicated that further lowering the policy rate would be appropriate if inflation continues to ease as predicted. The Bank of Canada is concerned that weak employment prospects could hinder the recovery of consumption. According to the latest meeting minutes released by the Bank of Canada, the central bank hopes for a renewed acceleration in economic growth, while some council members are concerned that a weak job market could impede this process. The minutes detailed discussions prior to the rate decision on July 24th, reiterating that part of the central bank's rate cut last month was aimed at boosting economic growth. As consumer price growth continues to slow, the Bank of Canada is paying more attention to the risks of not achieving the 2% inflation target. The council discussed various indicators indicating labor market slack, with some members pointing out that further weakness could delay the rebound in consumer spending, putting pressure on economic growth and inflation. With high rates suppressing the economy, Canada's unemployment rate has steadily risen over the past year, reaching 6.4% in June