The head of the Bank of Canada says he’s hoping that recent cuts to the benchmark interest rate will help to reignite hiring among Canadian businesses amid signs the labour market is weakening.
Governor Tiff Macklem spoke to reporters Tuesday after a speech to the Canada-UK Chamber of Commerce in London, U.K. His talk came just days after Statistics Canada reported the unemployment rate rose to 6.6 per cent in August, a seven-year high outside the pandemic years.
Asked for comment on the rising jobless figures, Macklem noted that the August data “continued what we’ve seen now for a number of months.”
Essentially, Canada’s labour force is growing more quickly than employers expanding their payrolls, driving up the unemployment rate despite an overall lack of layoffs.
“Yes, businesses are hiring, but they’re hiring much more slowly than people are entering the labour force,” Macklem said.
“To this point, we haven’t seen a big change in layoffs. If you were to see that, that would certainly be a concern.”
He noted that trend has particularly impacted Canadian youth and newcomers who are finding it difficult to break into the labour market.
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With plans from the Liberal government to curb the flow of non-permanent residents into the country, Macklem said he expects the addition of new workers to the economy will slow.
At the same time, the Bank of Canada has embarked on an interest rate easing cycle, so far delivering three 25-basis-point cuts since June.
Macklem reiterated Tuesday that if the economy continues to evolve according to the Bank of Canada’s outlook, “it is reasonable to expect further cuts in our policy rate.”
With growing confidence that inflation will return to the central bank’s two per cent target, Macklem said that stimulating growth is part of the plan.
“We want to see household spending increase, we want to see business investment increase, we want to see companies have bigger hiring plans. We want to see job growth pick up,” he said.
“That’s certainly something that’s factoring into our interest rate decisions.”
With less restrictive monetary policy and a slowdown in population growth, Macklem predicts the “slack” in the labour market will be absorbed.
But he didn’t rule out “further adjustment” in the jobs market, noting that policy shifts tend to impact hiring and employment with a lag. Many economists predict the unemployment rate will continue to rise past current levels amid ongoing weakness in the economy.
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