ECONOMIC SPOTLIGHT // Q3 2024
In recent economic developments, the Bank of Canada (BoC) has reduced its overnight rate by 25 basis points to 4.25%, signalling a proactive but cautious approach amidst varying economic indicators. Simultaneously, the U.S. economy shows signs of a potential slowdown, raising expectations for a shift in Federal Reserve policies. This report explores the implications of these monetary decisions, the evolving global trade dynamics, and the internal challenges such as housing and productivity that are currently shaping the economic landscape in Canada.

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The BoC's decision to lower interest rates comes at a time when economic indicators have shown a noticeable softening. Notably, Canada’s GDP growth rate slowed to just 1% in the second quarter of 2024, reflecting broader global trends. The labor market has particularly felt this slowdown, with employment growth stalling as recent data shows little to no change in job creation over the past few months. Despite these challenges, inflation in Canada has moderated to 2.5% as of July 2024, down from earlier highs, reflecting the BoC's effective management of price stability.

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Across the border, the U.S. is grappling with its own economic shifts. The Federal Reserve faces increasing pressure to lower rates following a GDP growth deceleration to 2% in the third quarter, aligned with the slowdowns observed globally. The U.S. inflation has aligned closer to the Federal Reserve’s target, hovering around 2.4%, which gives the Fed leeway to consider rate cuts to stimulate the economy without overheating the market. The U.S. dollar’s recent fluctuations reflect the market's sensitivity to these potential policy changes, impacting global currency dynamics and international trade relations.

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Moreover, global trade has seen shifts with major economies reevaluating trade policies that directly affect both the Canadian and U.S. economies. For instance, changes in trade agreements and tariff adjustments are critical areas that could reshape economic forecasts and require strategic responses to maintain economic stability and growth.
Future Outlook

As we look forward to the remainder of 2024 and beyond, the economic trajectories of Canada and the U.S. are increasingly dependent on how well their central banks navigate the global economic turbulence. The Bank of Canada, with its recent rate cut to 4.25%, and the potential for the U.S. Federal Reserve to follow suit, highlights the proactive steps being taken to cushion against broader economic slowdowns.

For investors and policymakers, these data points serve as crucial indicators for strategic decision-making. Monitoring GDP trends, inflation rates, and labor market dynamics will be essential for anticipating market movements and adjusting investment strategies accordingly. In a world where economic conditions are perpetually shifting, staying informed and agile will be key to navigating future uncertainties effectively.
Stay tuned for updates as we monitor these developments closely.
Source – TD Economics*
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