Is a BoC rate cut now off the table after latest jobs figures?

A robust labour market report for December is casting doubt on whether the Bank of Canada will lower interest rates at its first policy meeting of 2025, scheduled for January 29.

Statistics Canada reported that the Canadian economy added 91,000 net jobs in December, reducing the national unemployment rate to 6.7% from 6.8% in November. This marked one of the largest single-month job gains in two years, with substantial growth in full-time positions across various sectors.

Broad-based job growth

The public sector led December’s surge, adding 40,000 positions, followed by gains in educational services and transportation and warehousing. Private sector employment increased by 27,000 jobs. Additionally, the employment rate climbed to 60.8%, the first uptick since January 2023.

Economists had predicted a rise in the unemployment rate to 6.9% in December, making the better-than-expected results a surprise. Andrew Grantham, senior economist at CIBC, described the labour market’s year-end performance as finishing “with a bang.”

Implications for interest rate policy

The Bank of Canada has been cutting interest rates to stimulate the economy, lowering its benchmark rate by 1.75 percentage points over five consecutive decisions in 2024. However, the latest jobs data have caused some analysts to question whether another rate cut will occur this month.

Doug Porter, chief economist at BMO, told Global News the December employment figures indicate an economy “getting up off the mat.” While cautioning against overreliance on a single report, Porter said the strong job numbers create “meaningful doubt” about the likelihood of a January rate cut.

The probability of another cut has dropped to 61%, down from 70% before the release of the jobs report, according to Reuters. TD Bank economist James Orlando suggested that the report “puts a January rate cut into question.”

Slowing wage growth

The pace of annual wage growth has continued to decelerate, falling to 3.8% in December from 4.1% in November. While this trend eases inflationary concerns, it also signals a cooling of labour market pressures.

Bank of Canada Governor Tiff Macklem has previously cautioned that further rate cuts will proceed at a “more gradual” pace if economic conditions align with expectations. Economists at CIBC still forecast a 25-basis-point rate cut later this month, with further easing likely throughout 2025.

Broader context

The strong labour market data come amid broader concerns about Canada’s economic resilience. In 2024, 8.8% of Canadian workers were employed in industries heavily reliant on US demand for exports. This dependency is increasingly under scrutiny as US tariff policies loom.

In the US, the labour market also ended the year on a strong note, with 256,000 jobs added in December and the unemployment rate dropping to 4.1%. This solid performance is expected to keep the Federal Reserve from adjusting interest rates in the near term.

Source CMP
By Jonalyn Cueto