“I don’t think the economic indicators, at this point, are flashing that a recession is upon us,” Alexander said.
He doesn’t see any urgency for the Bank of Canada to follow the Fed’s lead.
“The two central banks didn’t move in lockstep with rates going up, so they don’t need to move in lockstep with rates coming down,” Alexander said.
“One could argue that the Fed went farther faster and now it’s going reverse some of that, so there isn’t the pressure on the Bank of Canada to respond.”
The Bank of Canada should also be careful about “expending ammunition” that could be used later to deal with a downturn, he said.
Alexander added that a rate cut by the Fed could bring benefits to trade-dependent Canada by bolstering U.S. and foreign demand. It could also put additional upward pressure on the Canadian dollar.
Earlier this month, the Bank of Canada kept its interest rate at 1.75 per cent for a sixth-straight policy meeting. Canadian economic growth has shown signs of re-emerging after it nearly stalled in late 2018 and early 2019.
The bank, however, showed no urgency at the July meeting to make a policy change even though the Fed had already signalled its intention to lower the U.S. rate.
Carolyn Wilkins, the Bank of Canada’s senior deputy governor, explained at the time that the U.S. and Canada were at different points in the economic cycle.
“The fact that Canada is picking up while the U.S. economy is slowing sounds like a divergence. In fact, it’s a process of convergence,” said Wilkins, noting Canada’s interest rate was already lower than the Fed’s.
“The United States is slowing to a more sustainable pace, while Canada is moving back up to its trend growth… By the second half of this year, growth should be similar in both economies as they converge on their respective potential level of activity.”