By Aditi Roy

At the Jackson Hole Economic Policy Symposium in late August, U.S. Federal Reserve chair Jerome Powell signalled rate cuts were coming. In mid-September, both the Federal Reserve and the Bank of Canada followed through, lowering their benchmark rates to support a weakening job market even as inflation remains above target.

For students at Toronto Metropolitan University (TMU), the effect of that decision could ripple far beyond central banks. Cheaper borrowing could lighten the load of student loans and credit card bills, while a stronger economy could mean more opportunities for students. However, experts caution that the short-term relief may come with longer-term risks. 

TMU accounting assistant professor Aoran Zhang explains the mechanics of this decision in simple terms. “If you cut the benchmark interest rate…the cost of borrowing will be reduced significantly, and it’s good for the general public,” he said. “Mortgages will be cheaper, credit will be easier and it can stimulate the real estate market.”

Zhang noted the wider impact of this decision on the Canadian economy. Cheaper borrowing costs induce economic activity in Canada, leading to more jobs and better wages. But he cautions that the benefits don’t come without potential risk. 

“Every decision has its pros and cons. In the short term, the benefits outweigh the costs. But in the long term, if inflation rises too much, the cost of living can increase and damage the economy,” he said.

Statistics Canada reported inflation rose to 1.9 per cent in August, with unemployment at 7.1 per cent and 65,500 jobs lost. On Sept. 17, the Bank of Canada cut its key interest rate by 25 basis points to 2.5 per cent. 

President of the Ted Rogers Financial Planning Association and third-year business technology management student Sujata Thakur reflects on how lowered interest rates could impact TMU students. “Rate cuts, lower interest rates kind of give students immediate relief…help free up cash for essentials, for small savings, or even for tuition,” she explained.

A TD survey in August reported 92 per cent of post-secondary students feel financial stress heading into the school year, with tuition, housing and groceries as their top worries. 

Like Zhang, Thakur is wary of the long-term risks of this immediate reduction. “In the long run, lower rates can be a double-edged sword. They might encourage more borrowing, which can lead to higher debt down the road. Understanding your total debt and then the repayment plan is more important than chasing those short-term conveniences,” said Thakur. 

Adrita Mutsuddi, a fourth-year economics and finance student, welcomed the rate cut. “One of the biggest things for a student is student loans…when the interest rate is lower, it will be easier for students to pay back their loans, as well as for young people to get a mortgage loan or buy houses,” she said.

According to Statistics Canada, Canadian bachelor’s graduates, on average, left school with over $28,000 in debt from government and non-government sources combined. Even the modest interest rate cuts are significant to ease the financial burden of repayment for students managing loans post-graduation. 

Mutsuddi added that businesses may invest more, creating job opportunities. “That means students will find it easier to find part-time jobs.” 

The Bank of Canada’s second quarterly Consumer Expectation survey found that the fear of job loss remains high, especially among young people, and many Canadians still see the labour market as weak.

Still, she cautioned, “When you reduce interest rates, people will borrow a lot, and that means there will be lower savings.” She added that the cut is only a “temporary fix.” 

For now, TMU students and experts are hopeful that the interest cuts will bring about relief from the current circumstances. While Zhang notes that although this policy alone isn’t enough, it is an imperative step in rebuilding the strength of the Canadian economy.

“With the right knowledge and tools, students can turn uncertainty into an opportunity,” Thakur expressed. “My hope is that more students take advantage of the resources around them…so they feel more empowered to manage their debt and budget effectively and be able to plan more confidently for their life after graduation.”