TD Bank says deep rate cuts will provide 'big tailwind' to Canada's economy

financialpost.com:

The Bank of Canada’s decision to begin cutting interest rates ahead of the United States Federal Reserve will ultimately lead to a “big tailwind” for the Canadian economy, Toronto-Dominion Bank economist James Orlando said.

Canada’s economy is projected to grow just 0.9 per cent this year, well below the estimated 2.3 per cent growth in the U.S., according to a Bloomberg survey of economists. Canadian consumers are more sensitive to interest rates — they have more debt than U.S. households, on average, and mortgage rates are reset more frequently.

That’s why rate cuts are a big deal for Canada, Orlando said in an interview on BNN Bloomberg Television.

“We’re going to be able to have less of our disposable income go into mortgage payments,” he said. “That, in effect, will be able to close a little bit of this gap between Canada and the United States because we have just been suffering under the weight of these high rates for so long.”

Policymakers at the Bank of Canada lowered the overnight interest rate to 4.75 per cent earlier this month — the first cut in more than four years — and signalled that more reductions are likely, as long as price pressures continue to ease.

A reacceleration of inflation has lowered the odds of another rate reduction in July — the consumer price index rose 2.9 per cent year-over-year in May, up from 2.7 per cent in the prior month, Statistics Canada said this week. But rates are clearly on a downward path, said Orlando, director and senior economist at the bank.

“We had so much uncertainty in Canada — now we’re getting more certainty,” he said. Toronto-Dominion economists expect the Bank of Canada to cut its policy rate to 2.25 per cent by the start of 2026, he added.

The Fed has yet to start