Economists Dismiss Bank of Canada Rate Hike Bets Amid Sluggish Job Market
Economists are labeling bets on Bank of Canada interest rate hikes as unrealistic, pointing to a stagnant and sclerotic jobs market that shows little sign of recovery. In March, Canada's economy added just 14,000 positions, barely offsetting the devastating losses of nearly 110,000 jobs in January and February combined. The unemployment rate held steady at 6.7 percent, matching forecasts but underscoring persistent labor market weaknesses.
Key Employment Data and Economic Implications
The March job gains nearly aligned with economists' estimates of 15,000, yet the overall picture remains bleak. Ali Jaffery, chief economist at KPMG Canada, described the job market as soft, with several critical underlying factors at play. For instance, the unemployment rate for the core labor force aged 25 to 54 rose for the third consecutive month to 5.8 percent, indicating increasing difficulty in finding work for this demographic.
Provincially, there was significant noise: British Columbia's jobless rate increased by 0.6 percentage points to 6.7 percent, a level not seen since February 2016 excluding pandemic years. Ontario's rate remained at 7.6 percent, while Quebec's fell to 5.4 percent, and Saskatchewan recorded the lowest rate at five percent.
Population and Labor Force Dynamics
Jaffery highlighted population trends as key to interpreting the jobs report. Canada averaged a gain of about 8,000 people per month in the first three months of 2026, a sharp slowdown from the monthly average of 50,000 in the first half of 2025. He attributed much of the employment loss to a contracting labor force, suggesting both soft demand and structural supply declines are impacting the market.
This ongoing slack makes calls for rate hikes by year-end appear unrealistic, according to Jaffery. He expects the Bank of Canada to maintain rates at 2.25 percent, influenced by external factors such as the Middle East crisis and Canada-U.S. trade negotiations.
Persistent Stagnation and Sectoral Shifts
David Rosenberg, president of Rosenberg Research & Associates Inc., echoed these concerns, describing the Canadian job market as sclerotic rather than vibrant. Employment has stagnated since last June, with a net loss of 40,000 full-time positions over the past six months, contrasted by an increase of over 80,000 part-time jobs.
Rosenberg noted the lofty unemployment rate of 6.7 percent and a stagnant employment-to-population ratio. In a potential credit cycle shift, he pointed to the financial services sector shedding nearly 20,000 workers between February and March, signaling broader economic challenges.
Overall, economists agree there is nothing in the latest report to suggest the economy is perking up, reinforcing the view that rate hike expectations are misplaced given the current labor market conditions.
