In his recent year-end speech, Bank of Canada governor Tiff Macklem shared his outlook on what lies ahead for Canada’s economy in 2024. Let’s break down the key points in simple terms.
Transition Year Ahead
Macklem anticipates that 2024 will be a “transition year.” What does that mean? Well, he expects the economy to slow down, and here’s why: The interest rates, which are like the cost of borrowing money, are going up. When that happens, people and businesses tend to spend less, which can slow down economic growth. This slowdown is a deliberate move to bring down inflation.
Why the Slowdown?
Higher interest rates from the past are still having an impact. They are making people and businesses spend less, which might limit growth and employment. However, according to Macklem, this slowdown is necessary to cool down inflation, which has been a bit too high.
The Path to Lower Inflation
Macklem shares that this economic weakness will help bring inflation back to the target level. Lower inflation means prices won’t rise as quickly, making it easier for people to afford things. Once inflation is under control, the central bank can consider lowering interest rates.
When to Expect Changes
However, Macklem cautions that nothing is certain, and there might be challenges along the way. The central bank will be closely watching and will only consider lowering interest rates when they are sure the economy is on track. It’s like a careful balancing act.
Lessons Learned
Macklem reflects on the lessons from this year. One important lesson is the commitment to keeping inflation around two percent. To improve communication, the Bank of Canada plans to hold news conferences with every interest rate decision. This means they want people to understand why they make the decisions they do.
Looking Forward
As we move into 2024, the Bank of Canada is also focusing on better tools and analysis to understand and respond to inflation. In a world with more uncertainty, they want to pay more attention to the supply side of the economy.
In conclusion, the outlook for this year, 2024 is expected to be a year of change as the Bank of Canada steers the economy towards stability. Keep an eye on the news for updates on interest rates and inflation as the year progresses!
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