There are increasing signs that interest rate cuts are feeding through to the real economy. Household consumption grew strongly in the third quarter and activity in the housing market has picked up. We expect consumer spending to continue to support the economy in the first half of 2025, although strict immigration targets and likely US tariffs will limit the upside for the economy this year and next. While we have revised up our forecast for the terminal policy rate to 2.5%, we still expect the Bank of Canada to cut rates further and more quickly than is currently priced into markets.
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