How will a strong job market affect the Bank of Canada’s decision not to raise rates?

The ongoing strength of the Canadian labour segment will probably affect the Bank of Canada’s strategy for this year, a prominent economist Sherry Cooper says.

Pointing to the incredible robustness seen in the January jobs report, Cooper said that such results cast a doubt on how long the central bank will stay away from raising its key lending rate.

“This report didn’t show any evidence of slowing at the labour market in response to the massive and fast interest rate increases,” – Cooper noted.

According to her, as more than 150,000 new jobs were created last month, the employment rate has returned to its pre-pandemic levels.

“Employment rates among people of 55-64 age have been growing steadily since the last summer, reflecting the increase in employment over that period seen among most demographic groups,” – Cooper said.

As immigration is expected to remain a main driver of employment during the next few years, the central bank will have to take this segment into account as it’s getting closer to the next rate meeting on March 8.

“The national jobs market isn’t slowing down, and it will most likely make the BoC nervous,” – she added. “The US also showed solid jobs market results in January, and the Fed chairman, Jay Powell, has assured markets that interest rates will probably keep going up.”

“This is the last labour market report before the Bank’s next rate meeting. We’ll also have the CPI data for January on February 21 which will be the main factor affecting the BoC’s decision. In case inflation keeps falling, as predicted, the pause in rate increases will continue.”