The Bank of Canada is likely to add labour-market conditions to its inflation mandate in coming weeks, a move that could mean a slower interest rate-hike trajectory, according to one major Canadian bank.

Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce, said Friday that he expects to see new language around the idea that achieving the central bank’s 2 per cent inflation target sustainably requires an economy near full employment. 

“That’s not quite a ‘dual mandate,’ but a half-step closer,” Shenfeld said in a report to investors.

The Bank of Canada is in the middle of a five-year review of its inflation-targeting framework with the Canadian government that likely will be completed by the end of this year. While there are few signs a major overhaul is in the works, economists speculate there could be design or communication changes that would give the central bank more leeway to tolerate higher inflation.

Shenfeld said the additional emphasis on the labor market could have implications on monetary policy. Since there’s plenty of uncertainty around what full employment actually looks like, the central bank will be more open to the idea of testing the limits of the economy. 

“If you don’t know where full employment lies, the only way to find out is to give yourself time to explore lower jobless rates and observe how wage and price inflation respond,” he said. “That suggests starting to hike a bit earlier, but taking a slow enough path to give the labor market a chance to show its true colors at progressively lower unemployment rates.”

Swaps trading suggests investors are betting the Bank of Canada will raise borrowing costs seven times over the next 12 months.