2024 Interest Rate Outlook from Top 6 Canadian Banks

Blair Brace - Jan 16, 2024

Happy New Year. I hope all is well with you and your family and that your 2024 is off to a great start.


One of the biggest developments I have seen recently in the markets is the price action and market outlook for interest rates. After rising aggressively throughout late 2021, until late last year, short term interest rates – as represented by the 2-Year U.S. Treasury Yield - appear to have peaked and have been rolling over.


You can see that here …

Source: Stockcharts, January 2024


This is significant since the yield on a 2-Year bond serves as a leading indicator for what Central Banks should do next…


Central Banks appear to be paying attention.


At their last meeting in December, the Fed surprised the markets by forecasting 3 rates cuts in 2024 for a total of -75 bps. They also lowered their forecast on inflation “core-PCE” in 2024 from 2.6% to 2.4%, then moving down to 2.1% in 2025.


Fed interest rate decision December 2023: Fed holds rates steady, indicates 3 cuts coming in 2024 (cnbc.com)


The Bank of Canada, while not formally announcing interest rate cuts yet, has historically followed the Fed’s lead.


In recent weeks, the Top 6 Canadian Banks have published their 2024 outlooks for interest rates and the economy in Canada and the U.S. I thought their views were interesting and have attached a summary of their respective outlooks for your reference.




BoC Rate Prediction

Fed Rate Prediction

Canadian Economy Prediction

U.S Economy Prediction


- The chilly growth backdrop will pave the way for rate cuts, possibly beginning in June (a step or two ahead of the Fed)

- Expect the overnight rate to end the year 100 bps lower at 4%

- While the BoC may lead the Fed, it prob won’t out-do it on the rate-cutting cycle

-Four 25 bp trims from the Fed in the second half of the year

Canada’s challenges are more homegrown, with a heavily indebted consumer…we expect very modest GDP growth of 0.5% with the economy dancing around the edge of recession in the first half of the year.


Look for growth to step back almost a full point to around 1.5%

Fiscal policy is likely to be less supportive; consumer spending is also expected to calm amid slower job gains, milder wage increases…


Base case is for rate cuts to start in July

Continuing at 25 bps per meeting pace

Finishing the year at 4.25%

First Cut in June

Finishing the year at 4 - 4.25%


Sluggish overall growth

Flat GDP numbers through the first half of 2024

Biggest risk is to the downside and GDP weakness continues longer through 2024

Negative GDP growth in Q1/Q2 2024

But overall low positive GDP growth for the full year 2024


Expect first rate cuts by BoC in July of 2024, ending with a 4.0% rate by December.

Expect first rate cut by Fed in June of 2024, ending with a 3.5% rate by December.

The Canadian economy has entered a period of weaker GDP growth and is back in excess supply, as households cut back on discretionary spending to prioritize debt payments amid the ongoing squeeze from fixed rate mortgage renewals, which will exert a larger drag next year. Growth should pick back up over the second half of next year as the Bank of Canada begins to ease, but we expect per-capita GDP growth to remain negative through 2024.


Base case is that the US enters a mild recession around mid-year. At a high level, the drag from higher real interest rates is expected to persist well into 2024. The labour market is another driving force of our US recession view. The normalization of the labour market so far has been led by a broad reduction of hires and job vacancies. As the labour market continues to heal, and it exhausts those options, the next step is likely to see a rise in layoffs. We expect this process to evolve over the next couple of quarters. Businesses should also find the decision to trim the workforce increasingly easier as they assess it won't be as challenging to re-hire workers if demand doesn't falter. We expect the unemployment rate to rise from 4% in early 2024 to 4.6% by the second half of the year.



First rate cut by mid-year; 150bps in total cuts by 2024YE

50bps in rate cuts by 2024YE

We expect to see real GDP contracting in Q1/24 and unemployment trending higher. Rate cuts by mid-year should support economic growth towards late 2024.

We view a soft landing scenario as most likely – GDP growth should continue to slow (but remain positive) and CPI should reach a two-handle by mid-2024.


Scotiabank Economics’ forecasts predict BoC will begin rate cuts in Q2/24 – ending the year at 4.00% (-100bps)


Our Economists predict Fed ON rates will end 2024 at 4.00% (-150bps)

In agreement with the market, Fed will likely pivot by end of Q1/24


Scotiabank Economics sees some GDP softness to end 2023 and heading into 2024.

In H2/24, we will begin to see economic recovery as financial conditions improve

Cdn GDP 2024: 0.7% YoY / 2025: 2.2% YoY

Cdn Inflation 2024: 2.6% / 2025: 2.0%


The US is poised to grow at a faster rate than Canada in 2024 (+0.8% YoY GDP), but only 1.3% in 2025.

Contrary to Canada, our economists believe we will see strong GDP data in H1/24, which will later softened in H2/24.

However, US CPI is forecasted to remain ‘high’, ending 2024 at 3.0%, falling to 2.2% in 2025.



Progress on the inflation front should enable the Bank of Canada to cut rates by 175 basis points in 2024 (starting in Q2) to give some breathing space to a faltering economy.


- 150 bps of cuts starting in Q2

Overall, we expect the environment to remain difficult in 2024, as the economy has yet to feel the full effects of past rate hikes.

We expect the Canadian economy to contract in the first half of the year, resulting in a decline of 0.2% for the year.

We expect growth in the U.S. to slow markedly in early 2024. This deceleration should enable the Fed to make rate cuts, but we believe these will come too late to prevent a few quarters of negative growth next year. The economy could still manage to grow by 0.9% over the year as a whole due to a positive base effect.


Source: BMO Global Asset Management, January 2024




All 6 Banks are forecasting interest rates cuts in both Canada and the U.S., commencing around mid-year.


In Canada, forecasts range from -75bps to -175bps in cuts, with the median projection around -100bps.


In the U.S, the top 6 Canadian Banks are forecasting between -50bps to -150bps in cuts by the Fed.


On the growth front, none of the Big 6 banks for forecasting a big, prolonged recession. Forecasts range from a mild recession in the first half of the year to a soft landing (i.e. no recession) scenario, with growth in the U.S. outpacing Canada.


Regardless of the quantity of cuts, the message is clear that rate cuts are on the horizon in 2024.


This is welcome news for investors and the markets.


I continue to find opportunities in interest rate sensitive areas of the market, that declined significantly in 2022-2023 as rates were rising, and appear to have bottomed now that interest rates have peaked. This is a key area of focus for me.


As always, if you have any questions or comments please contact the office.


I am watching things closely.


We are here for you.