Name: Why aren’t rising rates cooling Canadian spending? by The 10-Minute Take in The 10-Minute Take
Duration: 8 min 18 s
Description: The most aggressive monetary tightening cycle since the 1990s has sent interest rates soaring. Yet Canadians keep on spending. Why and will they keep it up? In this week’s episode of the 10-Minute Take, RBC Economists Claire Fan and Carrie Freestone explain why spending will slow but won’t outright decline.

The 10-Minute Take

The most aggressive monetary tightening cycle since the 1990s has sent interest rates soaring. Yet Canadians keep on spending. Why and will they keep it up? In this week’s episode of the 10-Minute Take, RBC Economists Claire Fan and Carrie Freestone explain why spending will slow but won’t outright decline.

Why aren’t rising rates cooling Canadian spending?

The Canadian economy has seen some pivotal shifts in 2023. The year started off with inflation at multi-decade highs, widespread labour shortages, and exceptionally strong consumer spending. The economy was very obviously overheating, and “recession” was more of a buzzword than a reality. Fast-forward to December and the macro data is looking considerably softer, in-line with a mild recession. Join RBC Economists Claire Fan and Carrie Freestone in this final episode of the season where they provide a recap of key macro themes that played out this year and tell you what to look out for in the year ahead.

What surprised economists in 2023?

It’s a new year and the Bank of Canada (BoC)'s overnight rate is currently sitting at its highest level in over two decades. Canadians facing higher borrowing costs are eager to see the BoC come to the rescue by changing course with interest rate cuts. But is the economic data soft enough for the BoC to pivot? On this episode of the 10-Minute Take, RBC economists Carrie Freestone and Claire Fan unpack their views on when rate cuts will happen and what the trajectory will look like.

When are interest rate cuts coming?

Just a couple of weeks into the new year and the economic landscape is full of surprises. Data on Canadian inflation again showed just how "sticky" domestic price pressures can be. Globally, supply chains are again being challenged, with attacks in the Red Sea disrupting container shipments. And finally, Canadian labour markets have been slowing for months. But unlike prior downturns, layoffs have actually been relatively limited and it's longer job searches for students and new graduates that are bearing the brunt instead.

On this episode of the 10-Minute Take, join RBC economists Carrie Freestone and Claire Fan as they walk through three key trends that already jumped out as surprises in 2024.

Surprises in 2024, already?

In 2023, Canadian households faced higher debt-servicing costs on mortgages and consumer credit as well as higher rents. Canadians had to tighten their belts and in many cases, forgo savings. Will 2024 look different? What will drive the slow rebound in the back half of the year? Join RBC Economists Claire Fan and Carrie Freestone as they unpack consumer trends and explain why the back half of this year will look different.

What will drive growth in the back half of 2024?

Over the past few years, Canada’s population growth has eclipsed the global average. International students accounted for about 20% of the recent population surge. The immense growth has ignited concerns about housing availability and affordability. On this episode of the 10-Minute Take, we welcome back RBC Economist Rachel Battaglia, who will unpack the new federal policy and explain whether it will have an impact on rental demand (and prices) going forward.

Will the international student cap impact Canadian rents?

Canadian household balance sheets appear exceptionally strong as disposable income continues to rise alongside savings. But, what the latest economic data tells us is distinctly different from how many households are feeling. There are many signs the average Canadian consumer is suffering. How can both be true at the same time?

On this episode of the 10-Minute Take, RBC economists Carrie Freestone and Claire Fan discuss this paradox of some Canadians falling behind on credit card payments, while others see savings rise. We’ll unpack the different realities experienced by various income groups, focusing on spending behaviours, debt accumulation or savings, and the distinct difference between wage growth and changes in disposable income.

Why are so many Canadians struggling if we’re amassing record savings?

The U.S. government deficit is unusually large at 6.4% of gross domestic product in 2024—the average over the last five decades is 3.7%. Promises from the new Trump administration on the campaign trail suggest it is likely to grow even bigger over the next four years. 
 
Massive fiscal spending has been fueling U.S. growth, but will have important and, ultimately, costly consequences for the economy. Lower corporate taxes could also hurt Canada’s competitiveness, at a time when the economic divergence with the U.S. is already large. In this 10-Minute Take, RBC economists Claire Fan and Carrie Freestone dive into the growing government deficit in the U.S., and its ripple effects on Canada. 

What does a massive U.S. government deficit mean for Canada?

The Canadian economy has been through a whirlwind in 2024. Canada has been in an extended period of underperforming per capita growth compared to the United States since 2019. Still, 2024 was a pivotal year for Canadians with inflation coming down and interest rates finally moving lower. 

But has inflation truly been tamed? If so, why doesn't it "feel" like affordability has truly gotten better? And, how do big policy pivots on immigration and global trade fit into it all?

Join RBC economists Carrie Freestone and Claire Fan in this 2024 10-Minute Take wrap-up episode. They'll discuss the highlights in a year-in-review before addressing key themes for 2025 in the final episode of the season.

What economists are thinking about heading into 2025

Season three of the 10-Minute Take is here, and we’re kicking things off with a deep dive into a hot topic—the Canadian dollar’s dramatic dip against the U.S. dollar, to levels unseen since the pandemic. 
In this episode, RBC Economics’ Claire Fan and Carrie Freestone break down: 
•	The key drivers behind the loonie’s recent slump.
•	What this means for inflation in the current economy.
•	Where we think the currency is headed in 2025. 
Tune in to hear why we don’t expect the Bank of Canada to bat an eye, and how Canada’s strong net international investment position will be particularly helpful.

The Loonie slump: What’s behind it and where it’s headed

The looming threat of potential U.S. tariffs is keeping economists and monetary policymakers up at night. In this episode, RBC Economics’ Claire Fan and Carrie Freestone break down: 

-How RBC Economists are thinking about a U.S. tariff shock- including the multiple stages of passthrough to the economy. 
-How we think the Bank of Canada could respond to higher prices resulting from tariffs. 
-Why “reshoring” isn’t as easy as it sounds. 

Tune in to hear why tariffs are demand-destructive and to understand the Bank of Canada’s predicament if required to respond to these policy-induced price-shifts. While we highlight that the economic damage is likely too severe for these threats to materialize, we also discuss what the consequences would be for the U.S. and Canada if tariffs are implemented.

How do Economists measure the impact of potential tariffs on Canada?

As the threat of tariffs has been evolving, economists have been busy assessing the potential economic fallout. In this episode, RBC Economics’ Carrie Freestone and Claire Fan discuss:

-What we know about the tariffs announced, what retaliation could look like and how these forces will impact both the Canadian and U.S. economies.
-What Bank of Canada Governor Tiff Macklem said in the January meeting about how the Bank could respond.
-How markets reacted to tariff news and how we are assessing the balance of risk between a hit to demand and price pressures arising from potential policies.

Join us as we unpack how we’re thinking about the potential damage from a trade war.

What we’ve learned about U.S.-Canada trade so far

Economic data has shown that Canadian inflation was a little firmer than expected in early 2025, especially after considering the impact of the federal tax holiday that pushed prices lower for a few categories including restaurant dining.

In the U.S., the picture is a bit “stickier.” Broadly resilient consumer demand has been keeping price pressures at uncomfortably high levels, and not all U.S. households are impacted equally. Those that earn less tend to have less options in avoiding higher priced essentials. 

Join RBC Economics’ Claire Fan and Carrie Freestone as they give their latest take on inflation, and how the looming trade rift plays into that.


Is inflation making a comeback in Canada?

Consumers and businesses on both sides of the border have been paralyzed with uncertainty related to trade. Confidence has tanked and we've also witnessed a notable deterioration in other “soft” sentiment data in recent months.

The extent that recent trade policies have impacted hard data is unclear but matters more for central bank decisions. In this week’s episode, RBC Economics’ Claire Fan and Carrie Freestone break down how trade turbulence is impacting labour markets in Canada and the U.S., and what to expect next in the ongoing trade war. 

Have the impact of tariffs shown up in the jobs market yet?

More attention is being focused on how Canada can better diversify trade to alternative sources as U.S. tariffs and threats continue to escalate. 
In the goods trade, Canada's geographical proximity to the U.S. makes it difficult to diversify away from the U.S. But, that is much less of a constraint for services. 

In this episode of the 10-Minute Take, economists Claire Fan and Carrie Freestone dig into: 
•	How much services Canada trades and with who? 
•	Is Canada is well positioned to leverage services for broader trade diversification? 
•	What are the headwinds facing services amid the ongoing trade war? 


Are services immune to tariffs in the trade war?

Full-blown reciprocal U.S. tariffs are on pause for 90 days, but sizeable 10% tariffs imposed on most countries on April 5 remains in place, and it, along with steep tariffs on imports from China, could have significant implications for the country’s inflation and growth.

The U.S. trade-weighted average tariff rate is currently at its highest since the 1930s, but, in a twist of fate, Canada has emerged as one of the least impacted countries, thanks to USMCA exemptions.

RBC Economics has updated forecasts for the U.S. and Canada to reflect these developments.  In this episode of the 10-Minute Take, Claire Fan and Carrie Freestone attempt to answer these questions:

· How will tariffs influence inflation and GDP growth in the U.S. and Canada?
· Will either country see a recession in the coming year?
· What could future policy from the Bank of Canada and Federal Reserve look like?

Forecasting in volatile times: Are tariffs a game changer for growth and inflation?

Macroeconomics for everybody! The (new) 10-Minute Take podcast from RBC Economics will explain (in simple terms) what the latest economic data means and why you should care.  It's everything you wanted to know but were too shy to ask -- in less than 10 minutes.

Why aren’t rising rates cooling Canadian spending?

The 10-Minute Take

Related tracks