Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
The Bank of Canada (BoC) is expected to continue its path of normalizing rates with a possible 25bps cut to 4.50% at the upcoming July policy meeting after it kickstarted the rate cut cycle in June.
The BoC had emphasized a cautious, data-dependent approach following its June rate cut. With June inflation easing and unemployment rising, a second consecutive rate cut in July appears likely. Concurrently, the Federal Reserve seems closer to starting its own rate cut cycle amid broadening US economic data weakness. The BOC also has a historical tendency for consecutive moves at the start of a cycle, reinforcing the likelihood of another cut this month.
Overall, while there may be reasons for the BOC to cut rates again, the statement could turn slightly less dovish and more balanced to reflect the momentum in June core inflation and continued wage pressures. This could mean that a data-dependent approach is emphasized and the central bank could remain away from committing to further rate cuts.
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