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A slowing global economy has put central banks on hold—and some forecasts even call for rate cuts. A speech delivered yesterday by Stephen Poloz, the Bank of Canada’s governor, added little to the established forecasts, as he made no mention of the potential direction of rates.

In a report, Derek Holt, vice-president and head of capital markets economics at Scotiabank, said the governor’s speech “walked a fine line between causes for optimism and risks to the outlook.” Holt described the speech’s tone as one of “cautious optimism toward Canada emerging from a soft patch.”

For example, Poloz noted economic challenges from low oil prices, the housing market and global trade uncertainty. Yet, he also described positive economic indicators for Canada, such as jobs growth, increasing wages and an expected growth in exports.

When asked about the inverted yield curve at a news conference after the speech, Poloz said the central bank isn’t forecasting a recession.

“I respect that historically the inversion of the yield curve has happened at key points—it’s not that it causes something, but it seems to be coincident,” he said.

He stressed that there are different factors related to the recent, slight inversion compared to what’s happened in the past. For example, Poloz said interest rates are much lower today, the stock market is performing well and investors haven’t pulled away from corporate debt.

“For all those reasons, I think we are looking at an innocent inversion that’s more statistical than indicative of a recession,” Poloz said, adding that these inversions may happen more often in the future.

Longer-term rate forecasts range from no hikes this year nor next, to potentially one in 2020. In a March 25 report, Desjardins says a better economic environment should persuade central banks on both sides of the border to raise rates around mid-2020. It forecasts one hike from the Bank of Canada (to 2.00%) and two that year from the Fed (to 3.00%).

Outlook for U.S. rates

Last month, the Federal Reserve signalled that interest rate hikes could be on hold this year, but some forecasts still call for potential hikes.

In a March 20 report, National Bank says a Fed rate hike in December 2019 would be justified if, as National Bank expects, “inflation surprises on the upside and global economic uncertainties die down.”

While Scotiabank forecasts the Fed’s key rate to be 3.00% at the end of 2020, it says that increase overshoots the long-run equilibrium of 2.75%. Thus, it forecasts a Fed rate cut to 2.75% in 2021.

CIBC has forecasted a Fed cut in 2020 when fiscal stimulus ends.