Analysts and economists are predicting that both the U.S. and Canada will cut interest rates in September after the American government’s top banker sent strong signals on Friday.

“The time has come for policy to adjust,” U.S. Federal Reserve Chair Jerome Powell said at the Fed’s annual Jackson Hole Symposium in Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”

Reductions would lower commercial real estate mortgage costs and interest applied to other forms of credit.

Powell’s comments and the Federal Open Market Committee July meeting minutes demonstrate Fed’s “clear commitment” to start cutting rates in September, said Toronto-Dominion Bank senior economists James Orlando and Thomas Feltmate in a research note provided to Connect.

Powell did not provide a schedule or projection for how much the FOMC was planning to cut interest rates. However, his comments got as near as possible to setting up an interest-rate cut at the next FOMC meeting in September.

The TD economists said the Fed is “likely to start slow” with a 25-basis-point cut. But they predict that any more abrupt signs of U.S. labour market cooling will result in a more aggressive pace of rate cuts.

TD’s Feltmate said Powell’s Jackson Hole speech might have been the “headliner” for financial markets during the week, but Canadian economic data provided “an exciting opening act.”

Canadian consumer price index inflation confirmed that the Bank of Canada can maintain its rate-cutting pace, Feltmate contended. The BoC introduced two long-awaited rate cuts in July and June, reducing the overnight lending rate to 4.5% from 5%.

Retail sales showed that consumer spending remained constrained by still high interest rates. And, the expected aversion of a nationwide rail strike, due to federal government-imposed binding arbitration, will “hopefully” limit the downside risk to near-term economic growth, Feltmate added.

“All this combined to anchor expectations that the BoC will cut its overnight rate by 25 bps at its announcement in [September],” he said.

Powell’s speech stressed concerns about the recent softening in the U.S. labour market.

“We do not seek or welcome further cooling in labour market conditions,” Powell said, adding that the slowdown in the labor market was “unmistakable.”

Since the Fed’s last meeting in July, U.S. job data has come in below expectations, and the Biden government has reduced labour market estimates.

Like the Canadian government, Washington strives to keep inflation within a 2% target. Powell expressed satisfaction with the Fed’s efforts to curb rising costs.

“My confidence has grown that inflation is on a sustainable path back to 2%,” he said.

FOMC members appear to be on the same page as Powell. (The FOMC includes Powell and the presidents of regional reserve banks that make up the U.S. Federal Reserve system.)

On Thursday, comments by Boston Fed President Susan Collins and Philadelphia Fed President Patrick Harker, in interviews to several media outlets, confirmed the U.S. central bank’s dovish stance.

Harker noted that he thinks the Fed “needs to start a process of moving rates down” in September, but that he needs to see a few more weeks of data to determine whether a 25-bps or a 50-bps cut is appropriate. Collins also said she sees it “soon being appropriate to begin easing policy,” and reiterated that “data will tell us what kind of pace makes sense.”

Meanwhile, Feltmate said the BoC’s door to more rate cuts is “wide open.”

TD forecasts that the BoC will proceed with cuts at each of its next three meetings in 2024.

— With files from Joe Palmisano of Connect Money.

Pictured: U.S. Federal Reserve Chief Jerome Powell

(Read Joe Palmisano’s analysis of Powell’s comments in Friday’s Evening Brief on Connect Money.)