The Bank of Canada cut its benchmark interest rate a quarter point to 4.5 per cent, and governor Tiff Macklem shifted his emphasis to avoiding a recession from a singular focus on fighting surging inflation. Here’s what you need to know: 

New forecast: The central bank dropped its forecast for economic growth this year to 1.2 per cent (from 1.5 per cent previously), and shaved its outlook for 2025 to 2.1 per cent. Those numbers are weak. The Bank of Canada estimates the economy could expand 2.4 per cent this year without stoking inflation, and its forecast for potential growth in 2025 and 2026 is about 1.9 per cent. 

The Bank of Canada sees year-over-year changes in the consumer price index averaging around 2.3 per cent in the third quarter, and then hovering around that pace through 2024. It predicts inflation slowing to the two per cent target by the end of 2025. 

New game plan: Macklem seems relatively confident that inflation has been tethered. That means he can spend more time thinking about economic growth. “As inflation gets closer to the two per cent target, the risk that inflation comes in higher than expected has to be increasingly balanced against the risk that the economy and inflation could be weaker than expected,” the governor said in prepared remarks.

The Bank of Canada hasn’t declared victory over inflation. The price of many goods is beginning to deflate, but wages, services and shelter inflation remain elevated. Still, those growth numbers clearly are giving policymakers pause. The Bank of Canada observed that the labour market has “cooled significantly” and described household spending as “weak.” The central bank’s math suggests population growth is offsetting slower spending from established households—but population growth should slow as the federal government curbs immigration. 

“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate,” Macklem said. “The timing will depend on how we see these opposing forces playing out.” 

New guidance: A game plan for confronting both inflation and growth risks will be more difficult to communicate. The central bank said it will be “carefully assessing” opposing inflationary and deflationary forces on a meeting by meeting basis. Economists are split on whether the central bank will cut rates at each of its remaining three meetings this year, or pause at some point to seek assurance that inflation has been truly slain. 

The Bank of Canada identified weaker household spending and slower growth abroad as factors that could upend its economic outlook. Those are probably good guides to predicting the rate trajectory from here. More cuts are coming, that’s for sure.