Earl Davis, head of fixed income and money markets at BMO Global Asset Management, joins BNN Bloomberg to discuss U.S. August jobs data.

Weaker than expected employment data from both sides of the border has increased the likelihood of a rate cut this month from the Bank of Canada and made a cut from the U.S. Federal Reserve a certainty, according to one expert.

Canada’s unemployment rate rose to 7.1 per cent in August from 6.9 per cent in July, reaching its highest level since 2016, excluding the pandemic period. The Canadian economy lost 66,000 jobs last month, Statistics Canada reported Friday.

Meanwhile, the U.S. economy added 22,000 jobs in August, the U.S. Labor Department said Friday, well below the roughly 80,000 economists had expected, according to The Associated Press.

The U.S. unemployment rate rose to 4.3 per cent, its highest level since 2017, excluding the pandemic. The data “cements” a rate cut from the Fed at its next meeting on Sept. 17, says Earl Davis, head of fixed income and money markets at BMO Global Asset Management.

“We’ve got inflation (data) coming before that, but it doesn’t matter from a cut perspective,” he said in an interview with BNN Bloomberg Friday morning.

“At Jackson Hole, you heard (Fed Chair Jerome) Powell already allude to growth and more (of a focus on) employment than the consumer price index (CPI), so I think it cements a cut; it’s 100 per cent discounted in the market.”

Davis said that after the expected 25-basis-point (bps) cut this month, he believes the Fed will cut by the same amount at its following two meetings, which would amount to 75 bps of interest rate relief by the end of the year.

When it comes to the Bank of Canada, Davis said he expects the central bank to cut rates at its next meeting, also slated for Sept. 17, given Friday’s weak jobs report, however markets aren’t fully convinced.

“What’s interesting is the market’s not 100 per cent that the Bank of Canada will ease on September 17 to 80 per cent, so very high – but the reason why it’s not 100 per cent is the Bank of Canada only has one focus: inflation,” he said.

“The (Fed) has two focuses: inflation and growth, we don’t have that in our mandate, and because (Canadian) core inflation is very sticky at three per cent, which is the higher end of the range, the market’s still looking to see the next CPI report to get that 100 per cent certainty.”

In recent months, the Bank of Canada has expressed a need for caution when considering its rate path going forward, given the ongoing trade war with Canada’s southern neighbour and the impacts of U.S. President Donald Trump’s tariffs, which economists warn could be inflationary.

However, Davis said a weakening labour market and signs of a slowing economy are enough to bring the central bank off the sidelines to lower its overnight rate, despite any lingering inflation concerns.

“Because of what’s going on with unemployment, because of what’s going on with growth… we feel the Bank of Canada will not only ease by 25 bps but match the Fed in 75 bps of eases in Canada this year and get down to two per cent by the end of the year,” he said.

“The unemployment rate going to (7.1 per cent), that’s a big jump. Going above seven is big, with net job losses, so there’s a lot of things here in Canada that say, in our view, that you do need that 75 bps of eases this year.”

With files from The Canadian Press and The Associated Press