The debate over whether the Bank of Canada will cut interest rates again rages on as economists pore over the latest economic data, forecasts and hints on what the U.S. Federal Reserve will do next.

Canada’s central bank signalled after its cut last month that 2.25 per cent might be the right level if the economy operates in line with its forecast.

Now, however, a fresh factor has popped into the equation, say economists at Capital Economics — Canada’s new

immigration targets. Last week Prime Minister Mark Carney’s government committed to bringing down the share of temporary residents to less than 5 per cent by 2027, a year later than his predecessor Justin Trudeau had originally laid out.

To accomplish this fewer people have to come into the country and more have to leave. Since managing how many people actually depart Canada can be difficult, the government chose to slash the number of new temporary residents by 43 per cent from about 674,000 in 2025 to 385,000 in 2026. Unlike last year’s plan, this year’s report to Parliament on immigration contained no guidance on how many people it expected to leave the country.

Capital’s deputy chief North America economist Stephen Brown estimates the federal government would meet its target if around 825,000 temporary residents left in 2027 and 2026. This seems doable because outflows were 740,000 annualized in the first half of this year, he said.

Such a migration would reduce Canada’s population growth to essentially zero over the next two years, which is weaker than the Bank of Canada’s prediction of 0.5 per cent growth.

Last week’s announcement raises the chance that the central bank will again lower its forecast for economic growth, but “the more likely outcome of lower immigration is that it will cause the unemployment rate to fall faster than we forecast,” said Brown.

Economists were taken by surprise this past Friday when Canada’s jobless rate fell from 7.1 per cent to 6.9 per cent in October. The gain of 67,000 jobs blasted past expectations of a loss of 5,000 jobs.

It was enough to persuade many that the bank would not cut in December and perhaps for even longer.

Canada’s new immigration targets could further tip the balance.

In its October monetary policy report the central bank estimated that the breakeven employment growth rate will fall to 5,000 jobs a month or 0.3 per cent year over year, said Capital.

However, if population growth is zero, an unusual situation could arise where  breakeven employment would be negative, about -5,000 jobs a month.

“In that environment, the unemployment rate would fall by 0.2 percentage points per year even if there were no net job creation,” said Brown.

Such an outcome would make the central bank even more concerned that lower interest rates would spark a rise in inflation.

“Given the lack of any meaningful fiscal stimulus in the budget last week, these new immigration targets are the bigger risk to our view that the Bank will resume cutting interest rates next year,” he said.

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Ottawa isn’t the only one running up a deeper deficit this year; the provinces are getting into the act as well.

Including the $13.5 billion forecast by Ontario last week, the provinces’ combined budget deficit is on track for $47 billion or 1.5 per cent of gross domestic product in the fiscal year 2025/26, said Robert Kavcic, senior economist with BMO Capital Markets.

Adding in the 2.5 per cent at the federal level amounts to a total government deficit of 3.9 per cent of GDP — the largest shortfall outside the pandemic since the Great Financial Crisis in the fiscal year 2009/10.

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If you, like many others, have loaded up on tech stocks there could be some painful days ahead, says investing columnist Peter Hodson. Profit-taking can happen at any time, especially as we approach year-end, so he recommends taking some money off the table before all those holiday parties hit your calendar.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

McLister on mortgages

Read on for his suggestions on what else is out there for your investment capital. Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

Financial Post on YouTube

mortgage rate page for Canada’s lowest national mortgage rates, updated daily. Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, Canadian Press and Bloomberg.

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