CIBC tweaks rate cut forecasts, sees earlier easing from Fed and Bank of Canada

• CIBC now expects both the Fed and Bank of Canada to cut rates by 25bps at each of their next three meetings
• This represents a 25bp lower endpoint for rates in 2024 and 2025 compared to previous forecasts
• Disinflation appears entrenched, allowing central banks to focus on downside economic risks
• However, CIBC doesn’t see an imminent recession despite recent softer US data
• They expect Q3 US growth to settle around 1.5%, noting Q2 was stronger than expected
• Rising unemployment tied more to labor force growth than economic weakness
• CIBC sees less reason for central banks to pause rate cuts to assess inflation progress
• But they don’t expect aggressive 50bp cuts without “scarier economic news”
• For next week’s US CPI, CIBC forecasts 0.2% m/m for both headline and core, in line with consensus
• They see US retail sales control group falling 0.2% m/m in July, below the +0.1% consensus

CIBC has moved towards a slightly more dovish outlook, but still expects a gradual easing cycle rather than aggressive cuts. They view recent data as supporting earlier cuts, but not signaling a dramatic economic downturn.

This article was written by Adam Button at www.forexlive.com.