The Bank of Canada wishes to revive the economy once again, and some members of its board are concerned that weak labor market conditions may hinder this process.

This is according to a summary of the discussions released by the central bank recently, which outlines the discussions leading up to the interest rate decision on July 24.

The summary states: "As a recession appears in the labor market, some members expressed concern that further weakness in the labor market could delay the recovery in consumption, putting downward pressures on growth and inflation."

As consumer price growth continues to decline, the central bank is increasingly focusing on the risks associated with falling below the targeted inflation rate of 2%.

The Bank of Canada indicated that it will continue to lower interest rates as long as inflation continues to slow in line with its expectations.

The current key interest rate is 4.5%. The next interest rate announcement is scheduled for September 4.

Royce Mendes, Managing Director and Head of Macro Strategy at Desjardins, stated in a client note: "Canadian central bank governors felt a greater urgency to cut interest rates in July."

"While the Bank of Canada still believes that consumer spending will bounce back, officials acknowledge the material risks that threaten this view from upcoming mortgage renewals and ongoing weakness in the labor market."

The Canadian economy has managed to avoid recession despite the weight of interest rates on consumer and business spending.

However, other measures indicate that the economy is on unstable ground. On a per capita basis, the economy seems to have already contracted, as noted by the Bank of Canada in the summary.

The document confirmed that the bank's decision to cut the interest rate last month was partly driven by the desire to boost economic growth.

The thriving labor market that job seekers enjoyed in the wake of the COVID-19 pandemic has now slowed down.

Employers are no longer reporting as many job vacancies, and many of the labor shortages and workers entering the job market are facing fewer options.

This has led to a steady increase in the unemployment rate, which reached 6.4 percent in June. The Canadian Statistics Agency is expected to release the July labor force survey on Friday.

Mendes stated: "We now expect the Bank of Canada to cut interest rates at each of its remaining decisions in 2024 before reaching our final interest rate forecast of 2.25 percent by the end of 2025."

"We no longer see Canadian central bank governors pausing in December, as we now expect the Federal Reserve to also make three consecutive rate cuts of 25 basis points during the remainder of this year."