Rate cut expectations in both Canada and the U.S. are being pared down, according to experts. 

Christian Lawrence, a senior cross-asset macro strategist at Rabobank, said in an interview with BNN Bloomberg Friday that at the beginning of the year more than 100 basis points of interest rate cuts were priced into the market for the U.S. Federal Reserve, with similar expectations for the Bank of Canada. 

“And now if you look at the U.S., it's less than 50 basis points priced by the end of the year, a little more in Canada at 60 basis points,” he said. 

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“And I think that pricing is pretty reasonable. We do expect the Bank of Canada to start cutting rates this summer, but for the Fed, we expect them to really wait until September before the first move.”

As both central banks are expected to lower rates this year, Lawrence said he is not expecting “an aggressive easing cycle.” 

“It's more about adjusting rates because the inflation dragon has not been slain. And there's some clear arguments for some more upside when it comes to supply-side driven inflation over the coming months,” he said. 

BMO’s Deputy Chief Economist Michael Gregory shared a similar outlook in a report Wednesday, saying his calls for the Bank of Canada and Federal Reserve have changed since March. 

“We still expect policy rate reductions to start around mid-year, but we now look for slower rate cut cadences that will end at higher levels. This ‘higher-for-longer’ profile for policy rates results in higher bond yields over the forecast horizon,” he said in the report. 

Gregory said he is forecasting an initial rate cut from the Fed at the end of July, but this may be pushed to September pending economic data from May. 

“As such, we’re projecting 50 bps in cumulative Fed rate cuts this year (down from 75 bps before), with December next on the docket, and 75 bps next year (down from 100 bps),” he said. 

Gregory also highlighted comments from Bank of Canada Governor Tiff Macklem on April 16, where he said underlying inflationary pressures are continuing to ease. Additionally, he is expecting a rate cut from Canada’s central bank in June and another in July. 

“However, we reckon the Bank will be increasingly cautious in testing the limits of policy divergence, keeping an eye on the Canadian dollar (and the inflationary consequences of depreciation),” Gregory said in the report. 

“As such, we’re projecting 75 bps in cumulative BoC rate cuts this year (down from 100 bps before) and 75 bps next year (down from 100 bps).”