David Rosenberg: Poor economy means Bank of Canada has to keep cutting rates

financialpost.com:

That is all anyone needs to know. The beauty is that the market is only priced for two Bank of Canada rate cuts between now and the end of the year. We think the central bank will be cutting at all four remaining meetings.

This is not really about “easing” per se, but rather removing the excess restraint. The Bank of Canada first openly discussed the fact that the Canadian economy morphed into a position of a disinflationary output gap at the April 10 meeting. Why it didn’t start the rate-cutting process back then is truly anyone’s guess — outside of a case of “once bitten, twice shy” because of the shame of missing “transitory” in 2021 and 2022.

There’s no sense crying over spilled milk. In actuality, the Canadian economy moved into “excess supply” last summer, and yet governor Tiff Macklem and crew raised rates two more times, to five per cent from 4.5 per cent. That was a classic policy overshoot. Whenever the Canadian economy is in this state of “excess supply,” the policy rate typically is under three per cent, not at 4.75 per cent (where it is today).

There are some pundits who believe that the Bank of Canada will end up re-igniting the housing market, but that is hardly going to be the case with mortgage credit availability drying up as banks record a ton of loan loss reserve provisions on their income statements.

The issue is that the supply of credit is subsiding at a far faster pace than the reduction we are seeing in the cost of credit, and the central bank has a long row to hoe to push interest rates down to a low enough level that can end up being described as stimulative.

It seems lost on those who believe the Bank of Canada is playing with fire that mortgage volume growth has completely evaporated over the