Canadian Households Under Pressure Despite Interest Rate Cuts

Despite three interest rate cuts by the Bank of Canada since June, Canadian consumers remain under financial stress. Factors such as the structure of mortgages, rising rents, and heavy household debt are contributing to economic strain. Analysts expect this stress to continue into 2025 and beyond.

Despite three interest rate cuts since June, Canadian consumers are feeling more financial stress than their U.S. counterparts, where the Federal Reserve has yet to reduce borrowing costs.

The financial pressure stems from Canada's unique mortgage structure, increasing rents, and significant household debt, which have reduced disposable incomes. With more mortgage renewals and high population growth driving up rents, economic growth is expected to remain subdued.

Even though Canada began cutting rates earlier than other economies, with the key policy rate now at 4.25%, the outlook remains muted. The Federal Reserve is anticipated to cut rates next week. Canada's inflation-adjusted per-person expenditure has dropped, highlighting the consumer strain, whereas U.S. spending has grown.

(With inputs from agencies.)