Posthaste: Bank of Canada interest rates could come down faster than we thought

financialpost.com:

The Bank of Canada’s interest rate cut yesterday was widely expected but that didn’t mean there weren’t surprises.

The central bank made its second cut in a row, bringing the benchmark interest rate to 4.5 per cent, but it was the “dovish tone” that struck economists.

“The tone of today’s many remarks almost seems to suggest that the bank now needs to be convinced not to keep trimming rates,” Douglas Porter, chief economist at BMO Capital Markets, said in a note.

Governor Tiff Macklem said Wednesday that economic growth remains weak relative to population growth, and household spending is soft.

Undershooting the inflation target is just as concerning for the central bank as overshooting it, he said, and acknowledged that the “downside risks” are now taking on more weight in the governing council’s deliberations.

“The dovish language in the releases paints a picture of officials who are growing more worried about the likelihood of recession,” said Randall Bartlett, senior director of economics at Fédération des caisses Desjardins du Québec.

There were cautions, of course. The governor warned progress to bring inflation back to target would be uneven with setbacks along the way and stressed rate decisions would be made “one at a time.”

However, the overall tone of the announcement led many economists to pick up the pace on their forecasts.

“There’s a strong sense that policymakers feel an urgency to continue to the rate cutting cycle in September,” said Bartlett, one of the economists to change his forecast.

CIBC Capital Markets chief economist Avery Shenfeld is now calling for cuts in September and October, rather than in October and December.

“The statement highlighted a pickup in economic growth ahead, but note that