Interest rates are high enough, RBC says

The forthcoming jobs report will add to the already compelling evidence that interest rates are already high enough.

So say RBC economists Nathan Janzen and Carrie Freestone, who in a report December 22 detailed their take on what the report, due the morning of January 5th, will bring.

“The holiday week ahead is empty of major economic data releases, but the new year will kick off with a fresh set of high profile Canadian and U.S. labour market data,” the pair wrote. “We expect Canadian employment to edge higher again in December (+10k) to add to the 25k November increase. But that gain would (again) not be enough to offset surging growth in the labour force and we look for the unemployment rate to tick up another tenth of a percent to 5.9%. For now, higher unemployment has come from longer job search times rather than a rise in the number of layoffs. The 0.8 ppt rise the unemployment rate since the spring has come mostly from those taking longer to find work. Since April employment is up by 182k, but the labour force has expanded twice that pace (364K.)”

The economists say that we should begin to see the rate cut cycle come into view early in 2024.

“The December jobs report will be the last labour market update before the Bank of Canada’s January 24th announcement. The central bank is highly likely to remain on hold at that meeting, leaving the overnight unchanged. The BoC will remain cautious about declaring victory over inflation, but we expect further softening in the economic backdrop alongside a narrowing breadth of inflation mean the first cut will come by mid-year,” they concluded.