The mistake?

Gulp.

Was it only two days ago the central bank dudes raised interest rates, warning more hikes might come, to cool off the economy?

Yep. That. This is what they said:

“In the outlook, inflation is higher and more persistent than in the July Report. Growth has picked up this year and is expected to recover further. Against this backdrop, Governing Council decided to increase the policy rate to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services. There could be a need to increase the policy rate further…”

So, up she went. The bank rate. The prime. LOCs and variable-rate mortgages (the kind 90% of borrowers opt for).

But today come concerns higher borrowing costs, designed to crush credit and cool things off, are the opposite of what’s really required. True, oil is spiking north of $100 again and that will push everybody’s overhead higher, but the fact remains Canada is now teetering close to recession.

StatsCan reports growth in August was, well, zero. It’s warning we might slip into negative numbers when September’s action is tabulated. Oh, and July sucked, too. Economists and government officials had expected modest growth in the latest period, but wholesale trade crumbled, manufacturing was weak, and the car business was hit. Meanwhile scheduled maintenance shutdowns in the oil sands dragged down production.

Consumers spent more, however, so retail sales were higher. And the feds are still expecting the economy to eke out a 1% performance for the third quarter – no recession, but a dramatic cooling from earlier in the year. It’s also about half what the Bank of Canada thought would happen.

Is this a problem?

CIBC’s Andrew Grantham hints that it probably is so.

“Today’s data suggest that all of the growth in Q3 came from the strong handoff at the end of the second quarter, and that throughout the period the economy actually stagnated,” he tells clients. “That provides weak momentum heading into Q4, suggesting that growth during the final quarter of the year could be even weaker than we, and the Bank of Canada, had previously assumed.”

The economy is losing momentum, and Trump’s tariffs are certainly part of the reason. With the rogue president threatening to ratchet up the pain on the first of January with a bevy of new levies, worse may be coming – in the absence of any White House-Carney trade deal.

Of course this puts the central bank in a quandary. Fight inflation, that eats away at household cash flow, with higher rates that also kill real estate markets and may put more people out of work? Or fight recession and zero growth with lower rates that, combined with elevated energy costs, will surely fuel inflation even if they stimulate borrowing, debt and demand?

We can see the Bank of Canada did not anticipate these numbers. They suggest the hike was hasty, rates were high enough already to keep people from new mortgage debt and a collapse in demand was pushing us towards stagflation.

That, by the way, ain’t good. It’s when the economy stalls or shrinks, increasing the jobless rate, but inflation remains high and families struggle. It’s also the definition of a central bank policy failure – even though our guys were not responsible for the Iran war, oil prices or electing an economic idiot to try and run the world.

So the tariffs hit us in this latest report. They will impact the ones to come. Higher tariffs, as mentioned, are currently on the table, as Mark Carney works hard in Montreal this week to cement a deal with Europe and lessen dependence on those guys to the south.

So, economists are sounding decidedly more bearish today on the potential of more rate hikes. CIBC, for example, sees one lonely quarter-point advance in 2027. TD economics says this:

“For the Bank of Canada, today’s report may cast a little more doubt around the durability of the recovery heading into 2027. The Bank’s latest outlook anticipates a meaningful strengthening in growth next year, but signs of softer momentum heading raise the bar for that forecast, particularly with trade uncertainty and higher energy costs still clouding the outlook. While the Bank remains focused on upside inflation risks following this week’s rate hike, weaker underlying growth could complicate the case for further tightening in the near-term.”

There’s a big federal budget planned for next week. Some people say it will be heavy on spending, stimulus and contain a mama of a deficit.

Now you know why.

About the picture: “Hope you’re well! Thank you for being a voice of reason in the chaos and for sharing sound financial advice,” writes Lauren. “My husband and I took a road trip with our children from southwestern Ontario to New Brunswick and PEI. The Bay of Fundy and its inlets have some of the most dramatic high and low tides in the world. We explored the ocean floor during low tide in Saint Andrews, NB a few days ago and came across a crab. Thought a crustacean picture for the blog may be a fun way to switch it up one day from the usual canines and felines. Albeit they’re certainly not as cute as our furry friends!”

To be in touch or send a picture of your beast (or crab) email to ‘[email protected]’.