Are interest rate cuts back on the table?

What does June’s hiring slowdown mean for the U.S. consumer and the interest rate outlook? As oil prices continue to decline, is supply normalizing at the pace expected by markets?

Market recap

• Equity markets rose again in this holiday-shortened week. The S&P 500 added 1.8% before shutting it down for an early weekend, while the TSX gained 0.8%. At the halfway mark, Canadian equities are up 11.2%, outpacing the S&P 500 despite less exposure to the AI trade and some legit economic headwinds.
• On the latter, it was nice to see the Canadian recession chatter confidently stamped out ahead of the national holiday. For the record, we were never in that camp following Q1’s second consecutive negative real GDP growth print, and the latest readings on growth in April and May already show the economy bounced back with some vigour to start Q2.
• As such, we upgraded our Q2 growth call to 1.8% from 1.0%, with some upside risk still on the table. That moved 2026 annual growth two ticks higher, to 0.7%

Jobs

The latest U.S. jobs report showed that hiring slowed in June, with nonfarm payrolls increasing by only 57,000—well below most estimates.¹ Some strain on the economy is to be expected giving lingering uncertainties, but we do not expect the consumer to be affected too badly. Prior to this report, the job picture had been strong for some time, and now some easing makes sense, especially in light of reemerging questions around the impact of artificial intelligence (AI) on the workforce and companies’ AI spend. We think markets will have to wait a few more months to see if this single datapoint turns into a trend. In general, however, we aren’t too worried; investors can expect some job losses and consumer tightness at the margin, as well as a small impact on gross domestic product (GDP), but nothing disastrous. In our view, this serves as a reminder why diversification across countries is important, even if the U.S. is still the world’s strongest economy. On the interest rate front, things are looking better for the U.S. Federal Reserve (Fed): falling oil prices should help to ease inflation concerns, while the weak jobs report adds to the case for cutting rates—though we don’t think they’re in a position to do that just yet. At this stage, the best-case scenario may be that they hold rates steady until the end of the year. Looking ahead, we think they’ll wait until inflation has come down before they get serious about rate cuts, especially with the dot plots from the Fed’s last meeting showing more of a bias toward a neutral or rate-increasing position rather than cutting.

Bottom line: We don’t think the weak U.S. jobs report signals any great stress on the economy or consumer, though it may increase the chance that the Fed holds interest rates steady through the end of 2026.

Oil

Oil prices are continuing to decline, having now reached pre-conflict levels.² Last week, I mentioned that oil prices have arguably come down too far given the time it will take for supply to normalize. Since then, supply has come back online a bit faster than we had expected—Saudi Arabia’s oil exports, for instance, have reportedly rebounded to about 90% of pre-crisis levels.³ That said, we don’t think supply will reach 100% as quickly as some expect. While traffic through the Strait of Hormuz has picked up, we are not convinced that it is completely open the way it was before the U.S.-Iran conflict; there is still the question of the 60-day window for the two countries to reach a final deal, as well as the military strikes we saw last week. In our view, pre-conflict oil prices do not make sense at present because of the number of unresolved issues. Markets are assuming that everything will work out over the next few months, and the Trump administration’s desire to fully resolve the conflict before the U.S. midterm elections in November is also likely giving them some confidence. Our view is that some degree of risk should be baked in. While we don’t necessarily expect a long-term re-escalation of the conflict, we do think that oil prices should have a premium attached to them compared to pre-conflict levels.

Bottom line: Oil markets are not pricing in any uncertainty or lack of trust between the U.S. and Iran, which we think is a mistake.

AI

Emerging Market (EM) equities, and especially AI-related stocks in South Korea, whipsawed last week amid concerns about the sustainability of the AI boom. At their lowest, South Korean stocks declined nearly 10% before rebounding 6% on Friday.⁴ In our view, some volatility in the AI space is to be expected, and a 10% discount was not enough for us to add to our South Korea position. That said, we’ve been bullish on EM all year, and it remains our biggest overweight. Our expectation is that upcoming Tech initial public offerings (IPOs), like those expected from Anthropic and OpenAI, are likely to cause more concern than positivity, as they will re-ignite the conversation around companies’ elevated valuations, perceived revenue shortcomings, and the capital required for growth. This is likely to increase the pressure on all AI-related companies—not just those going public—and cause ripple effects in both U.S. markets and areas like South Korea and Taiwan. In light of these concerns, we have trimmed our South Korea and EM positions slightly, though we remain overweight. Recently, we have also seen some upside in Chinese stocks, so we may be looking at a rotation within EM rather than a shift to another region. In the long term, our view on EM remains bullish. On the Technology front, we also remain bullish, but we do think having some defense in portfolios to hedge against valuation-related concerns makes sense—not only gold and puts, but also some exposure to defensive sectors.

Bottom line: Some volatility in the AI space—and EM, by extension—should be expected, which is why we continue to employ hedges in our portfolio.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report .

—

Originally Posted July 6, 2026 – Are interest rate cuts back on the table?

Sources

¹Augusta Saraiva, “US Hiring Slows Sharply, Curbing Recent Job-Market Momentum,” Bloomberg, July 2, 2026. 

²OilPrice.com, as of July 2, 2026. 

³Alex Longley and Prejula Prem, “Saudi Oil Flows Hit 90% of Pre-War Rate as Ships Exit Hormuz,” Bloomberg, July 2, 2026. 

⁴Charlotte Yang, “South Korean Stocks Jump 6% After Turbulent Week on AI Swings,” Bloomberg, July 3, 2026.