TD Notes The Calm Before This Week's Possible Bank of Canada Rate Cut

08:56 AM EDT, 09/15/2025 (MT Newswires) -- Last week was a quiet one for domestic data, which gave some time for markets to assess economic conditions before this Wednesday's Bank of Canada rate decision, said TD.

In recent weeks, softer economic data led by a further deterioration in Canada's job market has shifted the tides toward a rate cut on Wednesday - markets are pricing a 90% probability of a 25 bps cut, up from around 30% during the first half of August, noted the bank.

TD stated it has long argued that the BoC has reason to cut rates this year as ongoing trade uncertainty with the United States and loosening labor markets work to cool residual inflation pressures.

This Tuesday's consumer price index update could solidify the BoC's rate decision, if waning inflation momentum, especially in core measures, shows through, pointed out the bank. However, an upside surprise to inflation readings may keep the BoC to the sidelines.

Overall, recent data flows have more or less tracked the BoC's forecast scenario, consistent with a rising need for a further reduction in the policy rate. Whatever happens this week, TD believes the BoC's cutting cycle is nearing the end, with 2.25% policy rate -- the bottom end of its neutral rate range -- being the target.

The Canadian consumer has shown some resiliency in recent months. Q2 consumption growth exceeded expectations despite a trade-driven economic contraction. National balance sheet data released last week showed that stronger balance sheets may be underpinning the surge in spending as household wealth trends higher on the back of stronger financial markets.

It'ss encouraging to see a slight improvement in the financial position of Canadian households, but debt levels and debt-servicing costs remain elevated, added the bank. High debt burdens and a weaker labor market are likely to see households keep spending in check over the coming quarters, offering only modest support to growth in the second half of 2025.

As the economy faces headwinds, Prime Minister Mark Carney unveiled the first phase of the country's nation-building projects. The first five include: LNG Canada Phase 2 in British Colimbia; the Darlington New Nuclear Project in Ontario; the Contrecoeur port expansion in Quebec; and two mine expansion projects in B.C. and Saskatchewan. The combined value of the projects tallies around $25 billion, excluding the LNG Canada project, which has yet to reach a final investment decision. Another six projects in the early stages of planning have also been identified as part of the next wave under consideration.

The timing of project outlays is still highly uncertain and will likely span over several years, potentially providing a mild tailwind for Canada's GDP growth over the medium term, according to TD. More importantly, this nation-building agenda is part of the government's broader plan of enhancing long-term economic and productivity growth through increased defense spending, infrastructure development, reduced interprovincial trade barriers, and comprehensive spending and regulatory reviews.

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