The Bank of Canada’s interest rate cut this week – its second in two months – came with a new sense of urgency and fresh warnings from the central bank about the near-term state of the nation’s economy.

In his comments to reporters after the rate decision on Wednesday, Governor Tiff Macklem indicated his focus is turning toward spurring growth rather than worrying about inflation, which still remains above the central bank’s 2 per cent target. He declared that it would be “reasonable” to expect more cuts.

“The downside risks are taking on increased weight in our monetary policy deliberations,” Macklem said, signaling to Canadians that lower interest rates are on the horizon. The aim is clear: to alleviate the financial burden on indebted households and stimulate spending to address the growing economic slack.

“We need growth to pick up,” Macklem emphasized.

Yet, the Bank of Canada’s new forecasts tell a somewhat different story. Growth isn’t just anticipated; it’s imminent and robust.

The Bank projects a 2.8 per cent annualized growth rate for the current quarter, the fastest in more than a year. This momentum is expected to carry into 2025, when growth is expected to average at just over 2 per cent, before accelerating in 2026 to 2.4 per cent. These projections are solid, outpacing the average growth of the past two decades.

So why the anxiety from Macklem?

The central bank’s growth forecast hinges on a critical assumption: that the mass influx of new immigrant workers coming to this country will find employment. With the population increasing by 2.3 million over the past two years — pushing population growth to an off-the-charts annual growth rate of 3 per cent — the labor market faces immense pressure to absorb these new workers. The jobless rate — now at 6.4 per cent, up from 5 per cent at the end of 2022 — reflects the escalating challenge.

While the Bank of Canada expects working-age population growth to slow to about 1.7 per cent annually in 2025 and 2026, this is still well above average levels of about 1.3 per cent over the past 50 years.

Based on my calculations, the central bank’s forecast seems to assume the economy will generate more than 1 million new jobs between now and the end of 2026. This is a bold prediction, especially given the current interest rate environment. Despite recent cuts, rates remain restrictive, with the policy rate at 4.5 per cent. Sticky inflation is prohibiting the central bank from adding stimulus to the economy. All they are doing is gently taking the foot off the brakes.

Which makes the projected recovery even that much more remarkable.

Despite worries about productivity, the nation’s economy is benefiting from some important tailwinds, including robust global growth and the game-changing opening of the Trans Mountain pipeline that is poised to boost exports and foster investment. There’s also the natural rebound effect that typically comes after a period of sluggish growth.

We’ll get growth. Whether it will be enough to bring down joblessness is another matter. How policymakers react to stubbornly high unemployment in the face of an expanding economy may be the next challenge on the horizon.