Bay Street economists line up behind a hold as the jobless rate climbs to 6.5%
Odds of a quarter-point Bank of Canada increase on October 28 fell to about 25 percent from roughly 40 percent within hours of Friday’s labour force data.
LSEG Data & Analytics calculated the odds, according to Reuters.
Statistics Canada reported that the economy shed 68,000 positions in September.
The unemployment rate rose to 6.5 percent from 6.4 percent, and the Reuters consensus forecast had called for a gain of 9,200 jobs.
The key interest rate stands at 2.25 percent.
Andrew Hencic, director and senior economist at TD Economics in Toronto, wrote that the report will “pour some more cold water on near-term rate hike expectations for the [central bank].”
Hencic wrote that markets price 27 percent odds of a hike in October and 88 percent for December, down from fully priced the day before.
He wrote that TD expects the Bank of Canada to “remain data-dependent and stay on hold in October.”
Douglas Porter, chief economist at BMO Capital Markets, told Reuters that “a second consecutive month of sizable job losses washes away the surprising strength reported in Canada’s job market through the early summer, and leaves employment up a so-so 0.5 percent from a year ago.”
He added that the appropriate stance for the Bank of Canada is “watchful waiting, particularly so with employment suddenly clouding over.”
Porter graded the report 22.5 out of 100.
Public sector employment fell by 70,000 in a fourth consecutive monthly decline, led by educational services at 35,000.
Manufacturing lost 13,000 positions in the first full month after a new round of US tariffs took effect against Canada.
CIBC senior economist Andrew Grantham said in a note cited by CBC News that the weak employment data likely reflects “data volatility” more than “the impact of new US tariffs.”
Grantham said the data supports CIBC’s call that the Bank of Canada will “keep interest rates on hold at the two remaining meetings this year.”
Claire Fan, senior economist at Royal Bank of Canada in Toronto, said that “the monthly employment counts are notoriously volatile, and there are reasons not to read too much into the softer reading too quickly.”
She expects “progress made in Canada’s labour market earlier will be largely sustained, and the unemployment rate to broadly edge lower through the end of 2026.”
Royce Mendes, managing director and head of macro strategy at Desjardins Group, told Reuters that “given the recent deterioration in the labour market, Canadian central bankers will likely need to keep rates unchanged later this month.”
He added that “higher energy prices will begin feeding other categories of inflation this fall, and could force officials to tighten policy soon.”
Thomas Ryan, senior North America economist at Capital Economics Ltd., said in a note to the Financial Post that the Bank of Canada is on course to raise its policy rate soon to the midpoint of its neutral range, as a guard against “upside inflation risks from energy and food prices.”
The neutral range runs from 2.25 percent to 3.25 percent, placing the midpoint at 2.75 percent, and Capital Economics expects the bank to stop there.
Garnet Anderson, head of portfolio management at Tacita Capital, told BNN Bloomberg that “we were going to be surprised if they actually went forth with a hike, now it would be super surprising if they went forth with a hike in October, it doesn’t make sense.”
Reuters reported traders still pricing a 25-basis-point increase at the December meeting, and five Bay Street economists surveyed by Canadian Mortgage Professional expect the Bank to hold its policy rate steady on October 28.
The Canadian dollar traded 0.4 percent lower at 1.4275 per US dollar, or 70.05 US cents, Reuters reported, after touching its weakest intraday level since April 2025.
Average hourly wages rose 2.3 percent year over year in September, up from 2.0 percent in August.
