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Residential Market Commentary - Pressing the pause button

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The Bank of Canada appears ready to step to the sidelines at its next interest rate setting, on Wednesday.  The central bank says it wants to pause its current round of rate hikes and let the effects soak in across the economy.  There have been eight increases over the last year, pushing the trend-setting overnight rate to 4.50%, as the Bank tries to reduce consumption, slow the economy and bring inflation back under control.

There are signals that plan is working. 

The latest Gross Domestic Product (GDP) figures, which tally the total value of all goods and services produced by the economy, show that growth stalled in the fourth quarter of 2022 and actually contracted slightly in December.  A slowing housing market, and reduced spending by business and consumers were key factors in the slowdown.

The inflation reading fell again in January, coming in at 5.9%.  It had been as high as 8.1%, in June.

Employment growth seems to be the only economic indicator that is not behaving as the Bank would like.  In January the economy created 150,000 jobs – 10 times more than expected.  Normally a job market that vigorous would trigger fears of inflationary wage growth.  But while the rate of wage increases has gone up it has never matched the rate of inflation, and it has been slowing since late last year.

More than 30 economists polled by the Reuters news agency expect the Bank of Canada to hold its rate at 4.50%.  A little more than half of those economists expect the rate will not change for the rest of this year.