There’s been a lot of angst about when and how deeply central banks will cut interest rates, but there hasn’t been much movement yet.

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The United States Federal Reserve last week held its benchmark rate at 5.25 per cent to 5.5 per cent, but it at least signalled that it doesn’t intend to raise rates and policymakers even indicated three cuts are likely by year-end.

Nevertheless, analysts and economists alike were expecting central banks on both sides of the border to have already cut rates, with some at the start of the year expecting the Fed to cut six times this year. That pace has fallen by the wayside as inflation stays higher for longer and the U.S. continues to bubble.

“Like most analysts, I believe it was the right call to keep rates unchanged as the U.S. is battling with inflation over two per cent — 3.5 per cent, currently,” says Michael Constantino, chief executive of Webull Securities (Canada) Ltd., which launched a trading app at the start of the year for do-it-yourself investors. “The earlier chatter from experts of a mid-year cut is becoming muted. I don’t expect a cut until sometime in the fourth quarter.”

The Bank of Canada also held its rate at five per cent at its last meeting in April and while some economists think the door may be open for policymakers to begin cutting as early as June, governor Tiff Macklem hasn’t dropped any serious hints about that.

As a result, despite Canada’s waning economy and productivity, and calls for it to begin cutting rates now, investors, mortgage holders and everyone else are still wondering when some relief is on the way and what to do in the meantime.

Constantino, who has been with Webull Corp. since it launched in May 2018, offers his take on what we can expect.

Q: What does the Fed’s decision signal for future Bank of Canada decisions?

A: The Fed’s decision and its most recent language might lead the Bank of Canada to pause a little longer, but will not completely factor in on their final decision of what is better for Canadians.

Although rates in both markets do not have to be in complete sync, it’s well known that there is somewhat of a limit on how far the rates can diverge from one another. Bank of Canada governor Tiff Macklem has stated that we are nowhere close to that limit, and it is widely expected that policymakers will begin lowering its policy rate in the coming months despite the Fed taking longer.

Q: Is the Bank of Canada still on course for mid-year rate cuts?

A: There are signs that inflation is cooling, and the housing market is in short supply. Lowering rates now, especially in the spring, which is traditionally the start of the housing season, could signal a rush to market by people waiting on the sidelines, which could drive home prices even higher.

It’s a delicate balance and I think the Bank of Canada is waiting on more information. The thought from most analysts is that June or July will be the first cut. I think a rate cut gets pushed out a bit from mid-year.

Q: What’s your outlook on Canadian markets in the coming months?

A: I tend to see a slight uptick in the overall economic forecast and conditions, even with the job market being lacklustre and hovering around six per cent unemployment. Inflation is starting to ease back towards the Bank of Canada’s target of three per cent later in the year and into 2025. The central bank also needs to make sure not to cut too much too fast and cause the dollar to become weaker, which will drive up prices.

Investors need to pay close attention to the Canadian macro landscape and, most importantly, the language from Macklem in the upcoming meetings.

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