The article by David Rosenberg discusses the current state of the Canadian economy, specifically focusing on the labour market and inflation. According to Rosenberg, despite two rate cuts by the Bank of Canada, monetary policy remains too tight and more interest rate reductions are necessary.
Key points from the article include:
- Weak Labour Market: The employment-to-population ratio has been declining for three months in a row, with the lowest rate since August 2021.
- Rising Unemployment: Broad unemployment metrics show an increase in idle labour, indicating growing slack in the economy.
- Inflation Pressures Fading: Rosenberg believes inflation is visibly fading out of view, suggesting that interest rates should be lowered to align with underlying inflation levels.
Based on this analysis, Rosenberg predicts more rate cuts from the Bank of Canada, aiming to bring the policy rate into alignment with neutral at 2.75%. He also suggests rolling back some or all of the tightening cycle in 2022 and 2023 that took the policy rate up to 5% from its pre-pandemic level of 1.75%.
Rosenberg’s views align with his previous comments, where he has been a long-term advocate for more accommodative monetary policy due to economic conditions.
The article concludes by suggesting that investing rationally doesn’t make one a ‘perma bear’, and that the Bank of Canada should continue cutting rates despite some analysts’ concerns about inflation.