While Bank of Canada Governor Tiff Macklem says weakness in 2024 will lead us back to a balanced economy, he added it remains too early to start talking about rate cuts.

“Once Governing Council is assured that we are clearly on a path back to price stability, we will be considering whether and when we can lower our policy interest rate,” he said in his prepared remarks for his final speech of the year at the Toronto Club.

But with headline inflation still outside of the Bank’s neutral target range of 2% to 3%, Macklem says now is not yet the time to be talking about monetary policy easing.

“I know it is tempting to rush ahead to that discussion,” he continued. “But it’s still too early to consider cutting our policy rate.”

Instead, he said the Bank’s Governing Council will continue to debate “whether monetary policy is restrictive enough and how long it needs to remain restrictive to restore price stability.”

What to expect in 2024?

After economic growth contracted in the third quarter, Macklem said Canadians should expect continued weak growth heading into 2024, adding that “the next two to three quarters will be difficult for many.”

While he said excess demand in the economy is now gone, the cost of living is still increasing too quickly, and weak demand for businesses will translate into a slowing growth of the labour force.

On the inflation front, Macklem said there is likely to be some “push and pull” as a cooling economy reduces inflationary pressures, while other forces continue to exert upward pressure.

However, he also said 2024 will be a “transition year,” adding that he expects inflation to be “getting close” to the 2% target by this time next year.

“The 2% inflation target is now in sight,” he said. “And while we’re not there yet, the conditions increasingly appear to be in place to get us there.”

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