Trade War Fears Spark Rate Cut Hopes as Bank of Canada Decision Looms

The Bank of Canada is set to announce its interest rate decision on September 2, and while most economists expect a hold, trade tensions between the US and Canada could force an unexpected change in course.

National Bank of Canada strategists Taylor Schleich and Ethan Currie note that if the trade war persists or worsens, the bank's job becomes much harder. They estimate that 100,000 to 130,000 Canadian jobs could be at risk due to counter tariffs imposed on $28-billion worth of Canadian goods.

While markets have taken rate cuts off the table, Schleich and Currie say the likelihood of rate cuts has clearly grown. The central bank may also have to deal with inflation rising above its comfort zone of 1 to 3 per cent if Canada's counter tariffs hike prices.