Bank of Canada holds interest rate at 2.25%; U.S. Federal Reserve cuts for third consecutive time

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12/10/25 14:37

Wall Street holds near its all-time high after the Fed cuts rates

- The Associated Press

The U.S. stock market is holding near its all-time high on Wednesday after the Federal Reserve cut its main interest rate to bolster the job market, just like nearly everyone on Wall Street expected.

The S&P 500 rose 0.1 per cent and inched closer to its record, which was set in October. The Dow Jones Industrial Average was up 248 points, or 0.5 per cent, as of 2:05 p.m. Eastern time, and the Nasdaq composite was 0.2 per cent lower.

Wall Street loves lower interest rates because they can boost the economy and goose prices for investments, even if they also can worsen inflation. The market reacted only modestly to Wednesday’s cut because stock prices had already run toward their records on the widespread assumption that exactly such a move was coming.

The bigger question remains how many more cuts may be in store for 2026 from the Fed to bolster a slowing job market.

After voting on Wednesday’s cut of a quarter of a percentage point, Fed officials released projections for where they see the federal funds rate ending 2026. The median member is penciling in one more cut by the end of next year, the same as three months earlier.

That projection is under the microscope because Fed officials had seemed unusually split about how much more help the economy may need from lower interest rates. With inflation remaining stubbornly above the Fed’s 2-per-cent target, some officials had been saying it was the bigger threat for the economy rather than the job market.

12/10/25 14:10

U.S. Fed delivers third straight rate cut

- The Associated Press

The Federal Reserve reduced its key interest rate for the third time in a row Wednesday but signaled that it may leave rates unchanged in the coming months, a move that could attract ire from President Donald Trump, who has demanded steep reductions to borrowing costs.

In a statement released after a two-day meeting, the Fed’s rate-setting committee signaled that it may keep its rate unchanged in the coming months. And in a set of quarterly economic projections, Fed officials signaled they expect to lower rates just once next year.

Wednesday’s cut reduced the rate by a quarter percentage point to about 3.6%, the lowest it has been in nearly three years. Lower rates from the Fed can bring down borrowing costs for mortgages, auto loans, and credit cards over time, though market forces can also affect those rates.

Three Fed officials dissented from the move, the most dissents in six years and a sign of deep divisions on a committee that traditionally works by consensus. Two officials voted to keep the Fed’s rate unchanged, while Stephen Miran, whom Trump appointed in September, voted for a half point cut.

December’s meeting could usher in a more contentious period for the Fed. Officials are split between those who support reducing rates to bolster hiring and those who’d prefer to keep rates unchanged because inflation remains above the central bank’s 2% target. Unless inflation shows clear signs of coming fully under control, or unemployment worsens, those divisions will likely remain.

Read the full story here.

12/10/25 13:00

What’s next?

- Mark Rendell

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• The next Bank of Canada rate decision is on Jan. 28. This will be accompanied by the bank’s quarterly Monetary Policy Report containing new inflation and economic growth forecasts.
• The U.S. Federal Reserve will deliver its latest rate decision at 2 p.m. ET today, followed by a press conference by chair Jerome Powell at 2:30 p.m. ET. The Fed is widely expected to cut by another quarter-percentage-point, bringing the federal funds target range down to 3.5-3.75 per cent. Fed policy makers are unusually divided about the right trajectory for U.S. monetary policy at the moment, so analysts will be watching for dissenting votes. The Fed will also publish its quarterly summary of economic projections.
• Statistics Canada will publish November inflation numbers on Monday, Dec. 15. October Payroll employment numbers and retail trade numbers will be published Thursday and Friday next week – the last two tidbits of data before the holidays.

12/10/25 12:05

Opinion: Don’t be surprised if the Bank of Canada raises interest rates next

– Jeremy Kronick and Steve Ambler

The Bank of Canada held its policy interest rate (the overnight rate target) at 2.25 per cent, in a move widely anticipated by financial markets. While the last year has often seen the debate centre on whether the bank should cut or not, next year could see as much discussion of a rate hike as a rate cut.

When the bank reduced its policy rate at its last announcement in October, despite the drop in second-quarter gross domestic product and a weak labour market, it strongly hinted that it was done with cuts for the time being.

“If inflation and economic activity evolve broadly in line with the October projection,” the bank said, “Governing Council sees the current policy rate at about the right level to keep inflation close to two per cent while helping the economy through this period of structural adjustment.”

If anything, the data since then has been stronger than expected. While there are a number of caveats to these positive surprises, on balance they justify the bank’s decision to remain on the sidelines.

Read the full column here.

12/10/25 11:35

Rates cuts are (likely) over. The defrosting of the housing market continues

– Erica Alini

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For prospective homebuyers who’ve been waiting for interest rates to bottom out, this is the sign to get off the fence.

The end of the rate-cutting cycle is likely to breathe new life into Canada’s anemic housing market. Home sales have been on a slow upward trend since April, but more certainty about interest rates could give the market an additional oomph, prompting more buyers to begin house-shopping in earnest.

Still, don’t expect the housing market’s temperature to suddenly turn way up. While interest rates are considerably lower than they were at their recent peak a year-and-a-half ago, they remain significantly higher than their pandemic lows. Housing prices are still hopelessly unaffordable for many people. And uncertainty about the economy and the job market persists. A home-buying stampede this spring seems unlikely.

The forecast is instead for what one might call “accelerated defrosting.” Buyers are likely to find a bit more competition, but rapid price increases are likely out of the cards in most of Canada.

Royal LePage predicts home prices will increase by just 1 per cent in 2026 nationwide, an aggregate number that masks slightly more robust increases in single-detached homes and continued decreases for condos.

Pricey markets such as the greater Toronto and Vancouver regions will continue to see price declines, though less expensive cities, such as Montreal, will see healthy gains, according to that forecast.

The red-hot exceptions are the last few pockets of the country where homes remain truly affordable. In Quebec City, for example, Royal LePage sees year-over-year price increases of as much as 12 per cent.

Read more on what today’s Bank of Canada decision means for homebuyers and sellers.

12/10/25 11:21

Rogers on the housing market

- Mark Rendell

“It’s tough to talk about Canada’s housing market at a national level, because there’s a lot of regional differences. But I think generally we would say we see better balance in the housing market. Sales-to-new-listings looks pretty balanced. Prices have come off their highs at a national level, and look to be stabilizing.

Overall activity looks to be better balanced right now. But again, that national picture masks more imbalanced markets in some regions and some housing types. So I think, in general we don’t expect another surge in house prices, we do expect maybe a continued correction in some of the higher-price markets.

Overall, both interest rates and supply conditions are helping to improve affordability on the margin, but we’ve got a ways to go. We’ve got a structural housing supply issue in Canada, and really until we address that, I think there will still be pressure on affordability, particularly for first-time home buyers.”

12/10/25 11:16

Macklem on building a new pipeline to the West Coast

- Mark Rendell

“I’m not going to comment on any specific plan, and I certainly don’t have an estimate of the impact of this plan on the Canadian economy at this point. But yes, we do need to diversify our trade. And I think the TMX pipeline expansion has been an important example. It has allowed us to increase our exports to the non-U.S. … It’s not a huge shift in our total exports. But on the margin it’s helping us get more oil to other countries, and it’s also helping us get more value ... because the spread between the Western Canada Select [oil price] and WTI has been narrowed by TMX. So yes, it is a good example of how these things can really make a difference. We do need to diversify trade, and part of that is better east-west transportation, better port capacity to get our products to the rest of the world. And yes, part of that is pipeline capacity.”

12/10/25 11:14

Macklem on free trade

- Matt Lundy

“Most countries trade with the United States: Japan, European Union … What’s different about Canada is that in Canada, the United States, we build things together. We’ve had free trade, open trade with the United States since 1989, 36 years ago. We’ve had open trade in the auto industry going back to 1965.

The consequence of U.S. tariffs is it’s disrupting that whole business model. So yes, it is having a big impact on our economy, even though the average tariff rate is quite low.”

12/10/25 11:07

Macklem on economic resilience

- Mark Rendell

“There are certainly scenarios for U.S. tariffs that could have pushed the Canadian economy into recession… As we get to the end of the year, the R-word people are talking about is resilience. We’ve seen some improvement in the data. The last three employment reports posted solid gains. In Q3 the economy expanded. We’re certainly ending the year in a better place than it looked in the middle of the year. But there’s still a significant adjustment to work through.”

12/10/25 11:05

Rogers on affordability

- Matt Lundy

Senior deputy governor Carolyn Rogers on affordability:

“Although it sounds good, the idea of prices coming down, that happens when the economy is struggling. So what we need to do is keep inflation at target and support the structural shift the economy is going through. As the economy grows, it will support wage increases, and that will help, over time, fix that sense of affordability being tough for Canadians.”

12/10/25 11:03

Macklem on the cost of living

- Mark Rendell

“Inflation has been around 2 per cent for more than a year now. But as you indicated, as we came out of COVID, inflation was much higher. Prices went up, and inflation has come back down, but prices have not. So yes, many Canadians are feeling squeezed by the cost of living.

What I would underline is two things. One is, it underscores the importance of keeping inflation low so that incomes can catch up. The other thing I would stress is that we’re not going to lower prices overall. If we were to try to push the whole price level down, that would cause a severe recession in Canada. Nobody wants that … So things are not going to become affordable by lowering prices overall.

The other element to improving affordability is to grow income. And you know, how do we grow income? Well, we need to improve our productivity. We need to invest more. We need to diversify our trade. That’s what’s going to grow income. With more income, then everything becomes more affordable.“

12/10/25 10:56

Macklem on the trajectory for monetary policy

- Mark Rendell

“Given how we see things right now, we think the policy rate is about right in the sense that we think it’s about right to keep inflation close to 2 per cent, and given that we’re at the lower end of our neutral range, providing a little bit of support to the economy to help it work through this structural adjustment.

How do we see things going forward? Well, that’s a more difficult question, and I’m not going to put our policy on a timeline. What markets can count on is we’re going to take our decisions one at a time, based on best available information …. We’re going to be assessing incoming data relative to our outlook, and we’ll be doing that in a symmetric way. If our outlook changes materially in either direction, either because there’s a big shock or because there’s an accumulation of evidence, one way or the other, we’re prepared to respond.“

12/10/25 10:53

Macklem on the federal budget

- Mark Rendell

“We’re still working through the macro economic implications [of the budget]. But I’d say two things. One is it’s going to take some time for the impact of those measures to be realized … It takes time to actually get the money out the door to get those projects going, and then it’s going to take time for those to show up in the economy. And that’ll build up over time, but it’s not like there’s a big hit right away. The second thing is the impact is going to depend, importantly, on the speed and the effectiveness of the execution. And importantly, particularly on investment, it’s going to depend on the uptake from the private sector. The budget is going to add to both demand and supply. We’ll have to work out the relative balance there. But to the extent that it’s adding capacity as well as demand, it’s not adding a lot of additional inflationary pressures."

12/10/25 10:47

Macklem on the labour market

- Matt Lundy

Tiff Macklem on the labour market:

“We’re pleased to see the improvement in the labour market. … There is some resilience to the economy. What I would say, though, is looking forward, it hasn’t fundamentally changed our view. The Canadian economy is going through a difficult structural adjustment that is going to take some time. When you talk to companies, they’re being very cautious about their investment plans, they’re cautious about their hiring plans. So yes, we are pleased to see this resilience, but going forward, we continue to expect fairly modest growth.”

12/10/25 10:45

Economists react to today’s BoC rate hold

– Darcy Keith

Here’s some initial reaction from economists on today’s decision:

Bradley Saunders, North America economist, Capital Economics

“We do not think there is enough in the Bank’s latest communication to suggest that hikes next year are now a likelihood, as investors appear to expect. …. The Bank generally tried to downplay excitement around a potential change in the economic outlook. The policy statement caveated recent positive news surrounding the labour market with the point that hiring intentions remain subdued.

Similarly, in his opening statement at the press conference later today, Governor Tiff Macklem will state that developments since October’s meeting have not changed the Bank’s view ‘that GDP will expand at a moderate pace in 2026 and inflation will remain close to target’. That said, he will also admit for the first time that if ‘an accumulation of evidence materially’ changes the outlook, then the Bank is prepared to respond. This, along with the newly added acknowledgement in the policy statement that “uncertainty remains elevated” amid discussion of the near-term path for monetary policy, suggests the Bank is beginning to recognize that the next move in the policy rate could be in either direction.

This all but kills our previously held view that the policy rate would eventually be lowered into accommodative territory at some point next year, given a sluggish recovery and lack of any offsetting short-term stimulus measures in the federal government’s latest budget. That said, we still hold a relatively dovish view. Roughly 40 [basis points] of hikes are now priced into financial markets for 2026 following today’s decision, but we view this as unlikely given that core inflation should be back near to 2% by midyear and policymakers are unlikely to want to normalize monetary policy while the economy still faces great uncertainty over the outcome of CUSMA renegotiations.”

Taylor Schleich & Ethan Currie, economists at National Bank

“As expected, the Bank of Canada held its policy rate unchanged but stopped short of validating market expectations for rate hikes as soon as the middle of next year. Instead, policymakers have adopted a more balanced view of recent improvements in hard economic data. They acknowledge stronger GDP growth but balance that by pointing to weak domestic demand. Similarly, they admitted there are signs of recovery in the labour market, but they still point to weakness in trade-related sectors and subdued ‘economy-wide’ hiring plans. …Going forward, we see the Bank holding steady through at least the first half of the year.”

Katherine Judge, senior economist, CIBC

“Policymakers played down recent upside surprises in data, pointing to only some signs of improvement in the labour market, with trade-sensitive sectors still weak and hiring intentions muted, and citing that final domestic demand was flat in Q3, with the headline reading driven by volatility in trade. Policymakers are looking for better signs of growth in 2026, but the comments that push back on recent upside surprises in the data seem to suggest that the risks ahead would be to the downside, and that resulted in bond yields easing off. We look for progress on renewing CUSMA in 2026 to support growth ahead, and we see the overnight rate remaining at its current level through end-2026.”

Douglas Porter, chief economist, BMO Capital Markets

“We shifted our call to no rate changes for all of 2026 recently, and today’s messaging from the Bank appears aligned with that view. Markets have quickly begun to consider when rates may begin to head higher, especially given the turn in soft guidance from other central banks — most notably Australia’s. However, Canada is still dealing with the heavy cloud of U.S. trade uncertainty, a cloud that is very unlikely to disperse anytime soon. And, of course, U.S. trade plays a much, much bigger role in Canada’s economy than in other majors (certainly much more than in Australia). We continue to believe that there is a greater chance of a BoC rate cut than a hike in 2026, even if the most likely outcome is no move at all.”

12/10/25 10:35

Rate cuts may be over for a while. Here’s what it means for mortgage rates

– Erica Alini

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Today’s interest rate announcement confirms what the Bank of Canada had already hinted at: The rate-cutting cycle that began in mid-2024 is likely over.

Financial markets are anticipating that the next interest rate move will be a hike in the latter half of next year. But the central bank has made it clear a further cut isn’t out of the question if the economy unexpectedly weakens.

“Uncertainty remains elevated. If the outlook changes, we are prepared to respond,” it said in its statement accompanying the rate announcement.

That uncertainty faces mortgage shoppers as well. Variable rates, which tend to move in sync with the central bank’s rate, would stand to benefit from a surprise economic shock that prompted more rate-cutting by the Bank of Canada.

Absent unforeseen bumps in the road, though, this seems poised to be the end of the ride down for variable rates. Homeowners will have to weigh carefully whether the potential savings of a variable rate are worth the risk.

Fixed-rate borrowers also have little to celebrate. The same string of surprisingly strong economic data that likely sealed the deal over today’s rate hold has also pushed up bond yields, which affect fixed-rate mortgages.

Several lenders have already started raising their fixed mortgage rates in response, prompting some mortgage brokers to wonder whether fixed rates below 4 per cent will soon be a thing of the past.

12/10/25 10:30

Key quotes from Tiff Macklem’s press conference opening statement

– Mark Rendell

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The rationale for the decision

“After cutting the policy interest rate in September and October, Governing Council had indicated that if inflation and economic activity were to evolve broadly in line with the October projection, the policy rate would be about right. While information since the last decision has affected the near-term dynamics of GDP growth, it has not changed our view that GDP will expand at a moderate pace in 2026 and inflation will remain close to target. Governing Council therefore decided to hold the policy rate unchanged. We agreed that a policy rate at the lower end of the neutral range was appropriate to provide some support for the economy as it works through this structural transition while keeping inflationary pressures contained.”

In the outlook for inflation

“Inflation has evolved largely as expected. CPI inflation was 2.2 per cent in October, and measures of core inflation remained in the range of 2.5 per cent to 3 per cent. In the months ahead, we will see some choppiness in headline inflation, reflecting the temporary GST/HST holiday on some goods and services a year ago. This is likely to push inflation temporarily higher in the near term. Seeing through this choppiness, we expect ongoing economic slack to roughly offset cost pressures associated with the reconfiguration of trade, keeping CPI inflation close to the 2-per-cent target.”

On the labour market

“The labour market is showing some signs of improvement. After declining through the summer, employment has posted solid gains for the past three months and the unemployment rate has declined to 6.5 per cent in November. Since the start of the year, there have been significant job losses in trade-sensitive sectors. But in recent months, employment in these sectors has been more stable, so gains in other sectors — particularly services — have boosted overall employment. Looking ahead, however, we’re seeing muted hiring intentions across the economy.”

Economy proving resilient

“Steep U.S. tariffs on steel, aluminum, autos and lumber have hit these sectors hard, and uncertainty about U.S. trade policy is weighing on business investment more broadly. But so far, the economy is proving resilient overall.”

On economic outlook

“After falling 1.8 per cent in the second quarter due to sharply lower exports, Canadian GDP grew 2.6 per cent in the third quarter. This was much stronger than we expected, but largely reflected volatility in trade. Final domestic demand was flat in the quarter. We expect growth in final domestic demand to resume, but with an anticipated decline in net exports, GDP growth is likely to be weak in the fourth quarter before picking up in 2026.”

12/10/25 10:26

BoC’s governing council sees rates ‘at about the right level’ for two reasons

– Matt Lundy

No surprises here. As widely anticipated, the Bank of Canada held its key interest rate at 2.25 per cent. And it looks to be staying there.

The central bank’s rate-setting governing council sees rates “at about the right level” for two reasons: to keep inflation in check and to support the economy during a challenging transition, because of the trade war.

Investor expectations eased somewhat in response. Swaps markets are still expecting a rate hike by next fall, though with less conviction than previously. A resumption of rate cuts seems like a long shot, though in a bruising trade skirmish, it’s tough to dismiss that outcome entirely.

In his prepared remarks, Governor Tiff Macklem pointed to an economy that is “proving resilient overall.”

The labour market has rebounded swiftly over the past three months, taking the unemployment rate down to 6.5 per cent. The economy bounced back forcefully in the third quarter, after taking an export-induced plunge in the spring.

But Mr. Macklem tempered the enthusiasm with other realities. Final domestic demand was flat in the third quarter. Hiring intentions remain weak. And the future of North American trade hangs in the balance, with the review of the United States-Canada-Mexico Agreement.

“The volatility we’re seeing in trade and quarterly GDP make it more difficult to assess the underlying momentum of the economy,” he said.

But for now, it seems like a ho-hum outlook. The economy will “expand at a moderate pace” next year and inflation will remain close to the 2-per-cent target. All the reason for the Bank of Canada to stay on the sidelines.

12/10/25 10:23

Macklem says Canada’s economic outlook remains uncertain

– Mark Rendell

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The bank’s move back to the sidelines follows a string of data suggesting the economy is weathering the trade war with the United States fairly well. Some industries, including steel, aluminum, lumber and automobiles, have been hit hard by U.S. tariffs. And business investment across many sectors is being constrained by uncertainty.

But overall, the economy is proving surprisingly sturdy. After a steep contraction in the second quarter, led by a collapse in exports, gross domestic product grew at an annualized pace of 2.6 per cent in the third quarter.

Some of this growth was the result of a statistical quirk tied to a swing in trade numbers. But the headline result was much stronger than expected, and a large upward revision to GDP numbers for the past three years suggests the Canadian economy was in better shape than realized heading into the current period of trade turmoil.

“We expect growth in final domestic demand to resume, but with an anticipated decline in net exports, GDP growth is likely to be weak in the fourth quarter before picking up in 2026,” Mr. Macklem said.

The labour market remains weak, but appears to be trending in a positive direction. Canada added around 180,000 jobs over the past three months and the unemployment rate fell to 6.5 per cent in November from 6.9 per cent the month before.

Mr. Macklem said that the economic outlook remains uncertain, especially given the review of the United States-Mexico-Canada free-trade agreement next year, which could create more trade friction. And he reiterated his view that U.S. protectionism “means our economy works less efficiently, with higher costs and less income. “

At 2.25 per cent, the policy rate is at the lower end of what the central bank considers to be a “neutral range” for interest rates, which neither stimulates nor constrains economic activity.

12/10/25 10:20

Markets are taking today’s BoC decision as a dovish hold

- Darcy Keith

Markets are taking this as quite a dovish “hold.” Shorter-term bond yields and the Canadian dollar immediately fell on the BoC decision and accompanying commentary that highlighted Governor Tiff Macklem’s belief that GDP growth is likely to be weak in the fourth quarter alongside muted hiring intentions.

The two-year bond yield - sensitive to the direction of Bank of Canada monetary policy - fell about four basis points, to 2.66 per cent. And there was a similar move in the five-year yield - the closely followed term that helps set the direction for fixed mortgage rates.

The dollar tumbled about one-tenth of a cent to 72.10 US cents.

Mr. Macklem is signalling he won’t be in any rush to start raising interest rates any time soon. But money markets are looking ahead to next year and believe that day isn’t all that far off.

After the rate decision, overnight index swaps suggest about equal odds the bank will announce a 25-basis-point hike by next summer, according to Bloomberg data. By October of 2026, markets are fully pricing in that hike. Those probabilities are roughly unchanged following today’s rate decision.

What about another cut? Markets certainly still aren’t expecting that for this cycle, even though there’s some downward pressure this morning on yields and the loonie, a reflection that the economic recovery remains fragile.

12/10/25 09:50

Bank of Canada holds benchmark rate at 2.25 per cent

- Mark Rendell

The Bank of Canada held its benchmark interest rate steady on Wednesday, moving onto the sidelines for what financial markets expect to be an extended pause.

As widely anticipated, the central bank kept its policy rate at 2.25 per cent, following cuts in September and October.

With the Canadian economy “proving resilient” in the face of U.S. tariffs, Bank of Canada Governor Tiff Macklem said that the policy rate was at “about the right level to keep inflation close to 2 per cent while helping the economy through this period of structural adjustment.”

He added that the bank could resume easing if an economic shock or accumulation of weak data “materially change the outlook.”

Having lowered interest rates four times this year – and nine times since the summer of 2024 – the bank is now expected to remain on hold through the first half of next year. Ahead of the decision, financial markets were betting the bank’s next move would be a hike in the summer or fall of 2026, according to Bloomberg data.

In effect, monetary policy appears to have returned to a steady glide path after several years of volatility, which saw the bank cut the policy rate to near zero at the start of the pandemic then raise it rapidly to 5 per cent in an attempt to contain the biggest burst of inflation in 40 years.

Read more about today’s Bank of Canada decision.

12/10/25 09:25

How BoC’s interest rate decisions have unfolded in 2025 so far

- Globe staff

January 29

The Bank of Canada cuts its benchmark interest rate by a quarter of a percentage point to 3 per cent. It also announces the abrupt end of quantitative tightening – a years-long push to shrink the size of its balance sheet after its early pandemic bond-buying spree.

March 12

The Bank of Canada cuts its policy interest rate by a quarter percentage point to 2.75 per cent but warns it would “proceed carefully” with future monetary policy decisions as the country navigates a trade war with the United States.

April 16

The Bank of Canada hits pause on monetary policy-easing campaign, leaving the benchmark policy rate unchanged at 2.75 per cent. This move follows seven consecutive cuts, which have lowered mortgage rates and other Canadian borrowing costs considerably since last summer.

June 4

The Bank of Canada holds its key interest rate steady for the second consecutive time at 2.75 per cent, following higher-than-expected inflation and sturdy economic growth numbers. But the bank acknowledges it may need to lower borrowing costs if U.S. tariffs and trade uncertainty continue to batter the Canadian economy.

July 30

The Bank of Canada holds its policy interest rate steady for the third consecutive time at 2.75 per cent, but leaves the door open to additional rate cuts if U.S. tariffs weaken the Canadian economy and inflation remains under control.

September 17

The Bank of Canada lowers its policy rate by a quarter-point to 2.5 per cent after a months-long pause, but refrains from providing guidance about additional rate cuts. Bank of Canada Governor Tiff Macklem says that the bank would proceed “carefully” and “look over a shorter horizon than usual.”

October 29

The Bank of Canada cuts its benchmark interest rate by a quarter-percentage-point to 2.25 per cent, but signals that it might be at the end of its easing cycle even as U.S. tariffs inflict significant and lasting damage on the Canadian economy.

12/10/25 09:02

Unusually divided U.S. Federal Reserve expected to deliver another cut

- Mark Rendell

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After the Bank of Canada rate announcement, investor attention will quickly turn to what’s happening south of the border, where an unusually divided U.S. Federal Reserve is expected to announce another interest rate cut this afternoon.

The Fed cut at its last two meetings, in September and October, in response to signs of growing weakness in the U.S. labour market. Financial markets are looking for another quarter-percentage-point cut today that would take the target range for the federal funds rate down to 3.5 - 3.75 per cent.

The decision could be more fraught than usual, given divisions among members of the Federal Open Market Committee (FOMC), which decides U.S. monetary policy. According to the Wall Street Journal, as many as five out of the 12 voting members have suggested in recent remarks that they don’t see a strong case for a cut.

Chair Jerome Powell, who advocated for a cut at the last two meetings, will have to try to steer the committee toward some kind of agreement. Analysts expect there to be a number of dissenting votes.

U.S. monetary policy has been complicated by President Donald Trump’s protectionist policies, which are weighing on the labour market while putting upward pressure on inflation – forcing the Fed to choose between the two sides of its dual-mandate (stable prices and maximum employment).

The outlook for U.S. interest rates has also been complicated by questions over who will succeed Mr. Powell when he steps down as chair in May.

The leading candidate is widely believed to be Kevin Hassett, a close ally of Mr. Trump and director of the National Economic Council. He is seen by many analysts as a dovish choice who would pursue the President’s desire for lower interest rates.

The Fed will announce its decision at 2 p.m. ET followed by a press conference by Mr. Powell at 2:30 p.m.

It will also publish its quarterly summary of economic projections, which includes the closely-watched “dot plot” capturing FOMC members’ views about where interest rates will be in the future.

12/10/25 08:15

What analysts and investors expect

- Matt Lundy

Traders seem pretty certain about how Wednesday will play out.

Swaps markets were pricing in just a 4-per-cent chance that the Bank of Canada will cut its benchmark interest rate by a quarter-percentage-point, according to Bloomberg data as of Tuesday morning. In contrast, the Fed was seen as having a 93-per-cent chance of cutting.

As far as the BoC is concerned, the bigger news is likely to be any hints of what the path forward looks like.

Heading into Wednesday’s decision, investors seem to think the central bank’s next move will be a rate hike – albeit not for a while. Swaps markets are pricing in a quarter-point increase by September or October of next year, although expectations can easily change, based on central bank communications and incoming economic data.

Also, keep in mind that Canada is facing a high-stakes review of the North American trade pact. With so much uncertainty on the future of free trade, it’s tough to feel certain about the path for interest rates.

12/10/25 07:00

Bank of Canada expected to hold key rate steady at 2.25%

- Mark Rendell

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The Bank of Canada is widely expected to hold its policy interest rate steady at 2.25 per cent today, moving back to the sidelines for what financial markets expect to be an extended pause.

After cutting its benchmark rate by a quarter–percentage-point in October, Governor Tiff Macklem said that would likely be the bank’s last cut in an easing cycle that has seen it lower interest rates nine times since the summer of 2024.

Financial markets now believe the central bank will remain on hold through the first half of next year, with the next move more likely to be a hike rather than a cut, according to Bloomberg data.

The bank will be making its decision today based on a raft of better-than-expected data, which suggest the Canadian economy has weathered U.S. tariffs surprisingly well in recent months, and may not require further monetary policy stimulus.

Canada added 54,000 jobs in November, bringing the cumulative increase in jobs for September through November to 181,000. The unemployment rate fell to 6.5 per cent from 6.9 per cent the month before.

Gross domestic product grew an annualized 2.6 per cent in the third quarter after a contraction in the second. Some of this headline growth was the result of a quirk in the trade data. But it still exceeded Bay Street and Bank of Canada estimates and was accompanied by sizable upward revisions to GDP growth numbers for each of the past three years.

Meanwhile, inflation – the bank’s principal focus – remains several notches above the 2-per-cent target. Annual consumer price index inflation clocked in at 2.2 per cent in October, while measures of core inflation remain around 3 per cent.

After the decision in October, Mr. Macklem did not rule out further cuts if the Canadian economy takes a nosedive. But he said there would have to be a “material” change in the bank’s economic outlook to warrant additional easing.

Read more about today’s expected Bank of Canada decision.