The Bank of Canada held their interest rate stable at 1.75%, but analysts speculate a rate cut is likely coming in October. Those who expect a rate cut next month cite the shadow of a US-China trade war as well as a looming global recession.

Bloomberg, TD, PIMCO Investment Management, and the media are all anticipating a rate cut in October, calling for a 25 or even 50 basis point reduction. In an interview with the Financial Post, David Rosenberg was very critical of the financial uncertainty following the Bank of Canada inaction this week.

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"The bottom line is what does the economic landscape look like? And I think that it is going to continue to weaken. A lot of the Canadian economic data we get are really backward looking, they're often from Stats Canada, lagged by two months. My sense is that the Bank of Canada is going to be compelled to cut rates because the economic landscape as once we get into the Fall and into the Winter, is going to be materially soft... it's really all about balance of risks. And the risks right now for materially slower economic growth globally and in Canada are elevated and they're rising. And only, I think, the most ardent fool as a central banker would sit idly by and not respond to those growing risks."

David Rosenberg, Chief Economist & Strategist at Gluskin Sheff & Associates Inc.

But not all voices are expecting a cut in October:

"James Laird, president of mortgage brokerage Canwise Financial, said Wednesday he saw nothing in the bank's statement to suggest the bank would be in a rush to lower rates." CBC News, Sept 4, 19

My Thoughts: Worst is yet to come

It seems clear that the Bank of Canada has left the door open for a cut, but an October cut is not assured.

The Bank of Canada needs to weigh the pros and cons of rate reduction. One potential pro is that the Canadian dollar would weaken relative to our trade partners, which is great for trade. But rate reductions may have undesired effects also, lower rates can trigger a housing price spike, making Canadian housing even less affordable.

Yet, despite the pros, cons and unforeseeable consequences, the Bank of Canada will almost certainly be forced into rate cuts, even if not this year. Why? Their hands will be forced by the inevitability of global recession.

As I often say, neither bull nor bear markets last forever, and recession is a normal part of the market cycle. We are overdue, and recession is coming, sooner than later.

In short, it seems to the Bank of Canada is hoping to avoid a cut for now. But it goes without say that global events can force their hand. Not least of which is the US-China trade war; Xi and Trump agreeing to renew trade talks does not mean those talks will be successful and when you dig into their grievances, you see that this war has no end in sight.

America feels they are getting screwed by China so they tariff China to compel change, but China is stubborn and their disregard for public well being is infamous, so they might easily sit and wait, allowing their consumer suffer. China might very well eat losses, on the back of their consumer, and populace, biding time till Trump is out, and some new push-over POTUS is in office.

Time will tell how the trade war plays out, but regardless economic down-turn is already unfolding, and worse is yet to come. So in the long run we will see 0% interest, then negative rates, and more money printing. The writing is on the wall and our path leads to one end: hyperinflation.

In closing, the global economic balance is perched precariously and will be shaken when trade talks falter, triggering Canadian financial crisis, and drastic rate cuts in 2019 or 2020.

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