Week of August 19, 2024

Dec Mullarkey, CFA , Managing Director, Investment Strategy and Asset Allocation

U.S. news this week continues to support a September rate cut. Minutes from the last U.S. Federal Reserve meeting suggest the majority of policymakers are in favor of easing at their next meeting – if the data continue to trend in the right direction, of course. The combination of cooler inflation and increasing unemployment are bolstering this case.

And in separate scorekeeping, it looked like there were fewer jobs created over the past year through to March than initially thought. The Fed and markets had been assuming average monthly job gains of 242,000, as provided by the Bureau of Labor Statistics (BLS). But that count now seems closer to 174,000 – still strong, but certainly a tamer market.

The downward revision was somewhat expected. In this annual reconciliation process the BLS job numbers, which are based on household samples, are eventually cross-checked against detailed employment tax records. While all that might sound cavalier, this is the nature of tracking a large economy, in which policymakers rely on reasonably timely estimates until more details are on the books. Also, undocumented workers that are estimated in the BSL survey are not picked up in the tax records, so the actual number is still somewhere between the two. Nevertheless, the job market is quickly normalizing. 

Sources: Bloomberg, Financial Times, 2024.

Randall Malcolm, CFA , Senior Managing Director and Portfolio Manager, Public Fixed Income

In Canada, we received the Consumer Price Index inflation data for July earlier this week. Not only had inflation decelerated from June’s reading, but it was also decreasing more quickly than the market had expected. July’s headline inflation at 2.5% and the trend downward confirmed the Bank of Canada’s (BoC’s) foresight in reducing its overnight rate by 25 basis points at each of the past two meetings, and gives the central bank the green light to reduce rates further at its next rate decision on September 4. Shelter costs remain the strongest influence on inflation; absent the impact of shelter costs inflation is running well below 2% year over year. These costs could decline as mortgage rates ratchet downward, so long as house prices don’t march higher.

Source: Bank of Canada, 2024.

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