Wed Sep 18 17:57:42 UTC 2024: ## Bank of Canada Officials Divided on Inflation Risks, Interest Rate Cuts
**OTTAWA** – The Bank of Canada’s governing council is grappling with conflicting views on inflation risks and the appropriate pace of interest rate cuts, according to a summary of their recent deliberations released Wednesday. While some officials are increasingly concerned about a potential economic slowdown and its impact on inflation, others believe that rising shelter and service prices will offset downward pressures.
The council ultimately decided to cut the policy rate to 4.25% in early September and signaled further easing to come. However, the divergent views on the inflation outlook suggest uncertainty about the path forward for borrowing costs.
The council discussed two scenarios: one where the economy and labor market remain weak or deteriorate further due to sluggish consumption and housing, and another where economic growth and the housing market strengthen faster than expected.
“It may be appropriate to lower the policy interest rate more quickly” in the first scenario, the policymakers said, acknowledging the need for more aggressive action if economic weakness persists. Conversely, “it may be appropriate to slow the pace of further cuts” if the economy strengthens as anticipated.
Governor Tiff Macklem, who has already mentioned these scenarios to reporters, emphasized that the decision-making process is data-driven. The council reiterated that there is “no pre-determined path” for interest rates.
The recent decline in the consumer price index (CPI), down to 2% year-over-year in August, provides some evidence of easing inflation pressures. However, Senior Deputy Governor Carolyn Rogers cautioned that “there’s still work to do” and that policymakers are focused on core price pressures.
Markets are now expecting a larger-than-normal interest rate cut at the Bank of Canada’s next meeting on October 23, with odds favoring a 50 basis-point reduction. The central bank will also release updated forecasts in a monetary policy report at that meeting.
The differing views within the Bank of Canada highlight the ongoing uncertainty around the economic outlook and the challenge of navigating a path towards stable inflation. The upcoming months will be critical in determining the future direction of interest rates and the overall economic trajectory in Canada.
First Piper 