Senior leaders within the Bank of Canada and U.S. Federal Reserve reiterated Thursday that their respective central banks are still figuring out where interest rates should ultimately land, but one economist says Canadians may not be able to handle high rates for much longer.

“You still have that soul-searching on neutral rates,” Desjardins VP and Chief Economist Jimmy Jean told BNN Bloomberg in a Thursday television interview.

“You have (Bank of Canada senior deputy governor) Carolyn Rogers reiterating prior hints that it may be higher than the 2.5 per cent midpoint they've been estimating.”

In a speech, Rogers warned that interest rates might not return to the low levels people were used to before the COVID-19 pandemic, saying that structural changes to the global economy could lead to higher neutral rates.

Meanwhile in the U.S., Federal Reserve Chair Jerome Powell suggested that the Fed is in no hurry to further raise its benchmark interest rate, but in a panel discussion at the International Monetary Fund, he didn’t rule out another hike to help reduce inflation to the Fed's two per cent target.

“Central banks are basically saying that they're not sure where exactly rates should land when all is said and done,” Jean said.


Jean said that for Canadians, a “higher for longer” interest rate environment looks “a bit scary,” noting that most Canadian households are already making financial sacrifices.

He added that even as the Bank of Canada attempts to prepare Canadians for the possibility of persistently higher rates, he believes the bank will have not choice but to cut rates sometime next year.

“Canadians are struggling. They’re making sacrifices, and that will show in the next GDP numbers,” Jean said.

“We might even see a technical recession, so if that process continues into 2024, I think the Bank of Canada will actually have to cut interest rates if they want to keep the risk of a severe recession at bay.”

With files from the Canadian Press and the Associated Press