Commentary

The Cutting Crew… Goes to 11

Douglas Porter, CFA

BMO Chief Economist

After a lengthy spell on the sidelines, both the Federal Reserve and the Bank of Canada are expected to resume cutting rates at next Wednesday’s decisions. A suddenly darker employment picture is the primary driver for both, overriding somewhat sticky core inflation, and looking past rollicking equity markets. The Fed’s decision is widely viewed as more of a slam-dunk, as the debate has gravitated from “if” to “how much”, with some small chance of a repeat of last September’s 50 bp slice. The Bank’s decision is a little less clear-cut, with the added complication of the CPI report landing just one day earlier. Still, in both cases, we expect a low-drama 25 bp trim, but with plenty of questions on what comes next.

Financial markets have certainly already cast their vote, with the expected rate cuts re-firing up the bullish parade. All major averages hit fresh all-time highs this week, led by the AI-fueled strength in mega tech. After lagging briefly, the Nasdaq has since revived and is now up a crackling 25% from year-ago levels, double the increase in the venerable Dow over the same period. Meantime, the once-laggard and mostly low-tech TSX has kept pace with the Nasdaq, boosted by gold and a mining mega-merger this week (some may call it high Teck).

The sustained upswing in equities is especially remarkable given that we are now knee-deep in the most challenging month of the year for stocks. The prospect of lower rates is providing a powerful tailwind, with investors apparently comfortable in the view that growth will cool just enough to prompt Fed easing, without tipping over into an outright downturn. Treasuries seem a little less certain on the latter issue. Brushing away wider fiscal concerns, long-term yields have cascaded lower in recent weeks amid the chillier growth backdrop. Even with a modest back-up on Friday, 10-year yields were holding just a bit above the 4% threshold, flirting with the lowest levels of the year and down from 4.5% as recently as mid-July.

Sidebar on the fiscal backdrop for yields: The U.S. budget deficit narrowed slightly in August from year-earlier levels, but was still weighty at $345 billion. This left the cumulative shortfall in the first 11 months of the fiscal year at a towering $1.97 trillion, up from $1.89 trillion in the year-ago period. With September usually printing modest surpluses, the final deficit is likely to be a tad lower, but still around 6.2% of GDP. That’s even with the helping hand of rapidly rising tariff receipts, which pushed above $30 billion last month to alone account for nearly 9% of government revenues, up from 1.6% for all of last year. Put another way, tariff revenues totalled $165 billion in the first 11 months of the fiscal year, up $95 billion from a year ago. Very roughly, half of this increase has been driven by the so-called emergency tariffs; if they were struck down, it would make a mark on government finances, but catastrophe? No.

The case for cuts was strengthened by two developments on the jobs front this week. First, the previously unremarkable benchmark revisions to the establishment survey revealed a hefty 911,000 downgrade to payroll gains in the year to March 2025. In a stroke, more than half of the previously estimated job growth vanished, leaving a very different context for the economy. Earlier this year, the Fed’s press release consistently described job market conditions as “solid”—doubtful that word would still apply given that average payroll gains to March will now be clipped down to 70,000. And, in the more current environment, initial jobless claims lurched to a four-year high of 263,000 in the latest week (though bumped by a spike in Texas).

The key inflation reports ultimately did not move the needle much for the Fed, with producer prices notably cooler than expected, but consumer prices a bit on the warm side. The yearly core CPI pace of 3.1% barely held steady, but the 3-month annualized rate firmed to 3.6%. To these eyes, what’s remarkable is that it’s not really a tariff story, as core goods have only bumped up to a 1.4% y/y clip—stronger than normal, but hardly a major source of pressure. Instead, services ex-shelter and groceries are proving to be surprisingly persistent. In turn, consumer inflation expectations are also sticky, with the latest University of Michigan survey reporting that the five-year outlook firmed again to 3.9% (from 3.5% last month and an average of 3.0% last year).

While we expect the Fed to deliver a low-drama 25 bp rate cut, there of course will be some drama around the vote. For starters, we’re still not certain exactly who will be voting, as the Administration is attempting to block Governor Cook from participating with a late appeal. Moreover, there is a strong possibility that at least one official, and perhaps as many as three, will vote for a more aggressive 50 bp cut. Perhaps more important than this particular decision is what happens next. We have been leaning to a steady stream of 25 bp slices every other FOMC meeting until the end of 2026. It’s pretty clear that the world will not unfold in such a neat and tidy way, with the risks now leaning to “earlier and deeper”.

No news this week.

Ned is a perfectly nice snail, but a rare shell means a doomed love life

WELLINGTON, New Zealand (AP) — Ned is a perfectly nice snail. If he had a dating profile, it might read: good listener, stable home, likes broccoli, seeks love.

But he’s already exhausted his local options and it’s not because he’s picky or unappealing. Instead, he’s a common garden snail with an uncommon anatomical problem that’s ruining his love life.

Ned’s shell coils to the left, not the right, making him the 1 in 40,000 snails whose sex organs don’t line up with those of the rest of their species. Unless another lefty snail is found, the young gastropod faces a lifetime of unintentional celibacy.

That dire prospect prompted a New Zealand nature lover who found the snail in her garden in August to launch a campaign to find his perfect match. But Ned’s quest for true love, perhaps predictably, is slow.

Giselle Clarkson was weeding her home vegetable patch in Wairarapa on the North Island when a snail tumbling out of the leafy greens caught her eye. Clarkson, the author and illustrator of a nature book, “The Observologist,” has an affection for snails and had long been on the lookout for a sinistral, or left-coiled shell.

“I knew immediately that I couldn’t just toss the snail back into the weeds with the others,” she said. Instead, she sent a photo of the snail, pictured alongside a right-coiled gastropod as proof, to her colleagues at New Zealand Geographic.

The magazine launched a nationwide campaign to find a mate for Ned, named for the left-handed character Ned Flanders in “The Simpsons,” who once opened a store called The Leftorium. That explains the male pronouns some use for Ned, although snails are hermaphrodites with sex organs on their necks and the capacity for both eggs and sperm.

“When you have a right-coiling snail and a left-coiling snail, they can’t slide up and get their pieces meeting in the right position,” Clarkson said. “So a lefty can only mate with another lefty.”

The fact that romantic hopefuls need not be a sex match should have boosted Ned’s prospects. But his inbox has remained empty except for photos of “optimistically misidentified right-coiling snails,” Clarkson said.

“We’ve had lots of enthusiasm and encouragement for Ned, a lot of people who can relate and really want the best for them, as a symbol of hope for everyone who’s looking for love,” she said. “But as yet, no lefties have been forthcoming.”

Ned’s relatable romantic woes have attracted global news coverage, but New Zealand’s strict biosecurity controls mean long-distance love probably isn’t on the cards. Other left-coiled snails have gotten lucky through public campaigns to find mates before, however, so Clarkson remains optimistic.

In 2017, the death of British sinistral snail Jeremy — named for left-wing politician and gardening lover Jeremy Corbyn — prompted a New York Times obituary after his eventful two-year life.

A quest to find left-coiled mates for Jeremy prompted the discovery of two prospective matches, who initially preferred each other. But Jeremy got the hang of it eventually, and by the time of his death had 56 offspring — all of them right-coiled.

It was a fascinating chance for scientists to investigate what produces left-coiled snails, with the cause most likely a rare genetic mutation. Studies of snail farms in Europe prompted researchers to estimate about 1 in every 40,000 snails is a lefty.

Back in Wairarapa, Ned’s constant presence in a tank in Clarkson’s living room has kindled a life of quiet companionship and existential questions.

“Maybe snails don’t have a concept of loneliness,” Clarkson found herself thinking. What if Ned didn’t mind being single?

However the young snail feels about his prospects, Ned probably has time. Garden snails live for two to five years and his shell suggests he’s about 6 months old, Clarkson said.

Still, she feels pressure to see him romantically fulfilled.

“I have never felt this stressed about the welfare of a common garden snail before,” she said. “I check on Ned almost obsessively.”