Bank of Canada holds key interest rate steady at 2.75% in face of changing U.S. trade policy

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06/04/25 12:10

What’s next?

– Mark Rendell

• The Bank of Canada’s next interest rate announcement is on July 30. That will be accompanied by the bank’s quarterly monetary policy report (MPR). In April, the bank decided not to publish a central forecast in its MPR, citing uncertainty caused by U.S. trade policy. Governor Tiff Macklem said Wednesday that he hopes “we can go back to a more usual forecast, or at least a central scenario with some risks. But that’s really going to depend on how things play out. So we’ll see.”
• With the economic outlook and the trajectory of interest rates heavily dependent on what happens with U.S. tariffs, the next crucial event will be the G7 leaders meeting in Kananaskis, Alta., from June 15 to 17. Donald Trump will be there, along with the leaders of the other G7 countries, giving Prime Minister Mark Carney another opening to talk trade with the U.S. President.
• The next interest rate announcement from the U.S. Federal Reserve will be on June 18. Financial markets expect the Fed to remain on hold and keep the federal funds rate in the range of 4.25 per cent to 4.5 per cent. The European Central Bank will deliver its next rate decision on Thursday. Financial markets are looking for a quarter-point cut, which would lower the ECB’s policy rate to 2 per cent.
• The Bank of Canada will get two more inflation readings from Statistics Canada before its next rate decision: the May inflation numbers on June 24, and the June inflation numbers on July 15. The next big economic data release comes Friday when Statscan will publish the May Labour Force Survey.

06/04/25 11:48

What’s next for interest rates, according to Macklem and markets?

– Mark Rendell

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The Bank of Canada is clearly leaning towards more rate cuts this year – but it isn’t committing to anything.

In the press conference following the stand-pat rate announcement, Governor Tiff Macklem said that members of the governing council “thought there could be a need for a reduction in the policy rate if the economy weakens in the face of continued U.S. tariffs and uncertainty, and cost pressures on inflation are contained.”

When pressed on what this meant, Mr. Macklem was coy.

 “Don’t take that as forward guidance. Take that as part of our deliberations. No more, no less. The very limited forward guidance we can give really is what I’ve already said, we’re proceeding carefully, and we’re being less forward looking than usual.”

Financial markets responded to the mixed messaging by trimming their bets on another cut at the next rate decision on July 30. Prior to today’s rate announcement, interest rate swap markets put the odds of a quarter-point cut in July at around 60 per cent, according to LSEG data. After the decision, that was dialled back to around 45 per cent.

Swap markets are currently pricing between one and two more quarter-point cuts before the end of the year. Several Bay Street economists think the central bank will need to ease more than that as U.S. tariffs and the uncertainty they cause take a bite out of the Canadian economy. They expect two to three more cuts this year, which would take the policy rate to as low as 2 per cent from the current level of 2.75 per cent.

06/04/25 11:39

Opinion: Bank of Canada should have cut interest rates instead of pausing

– Jeremy Kronick and Steve Ambler

The Bank of Canada left its policy interest rate at 2.75 per cent on Wednesday, confirming market expectations. Data showing stubbornly high underlying inflation and robust-looking first-quarter gross domestic product had led markets to price in only about a 20-per-cent probability of this cut.

While we understand the bank’s thinking, we believe they should have cut.

In April, we argued that the high degree of economic uncertainty and some concerning core inflation measures made a good case to pause. So, if uncertainty remains as high as it does, and we saw stronger-than-expected GDP numbers last Friday alongside rising core inflation – Consumer Price Index-trim to 3.1 per cent and CPI-median to 3.2 per cent – why a cut this time?

Three reasons: increasing unemployment, sagging housing markets, and weakness behind the strong-looking data. This flagging on the demand side will outweigh potential inflationary pressure from the impact of tariffs and trade wars on the economy’s supply side. This weakness means the Bank of Canada will have to cut its policy rate sooner or later. Doing it now may help prevent the economy from sliding into recession, something which is looking increasingly likely.

Read the full op-ed column here.

06/04/25 11:28

Canada’s housing market will remain sluggish after today’s rate announcement

– Salmaan Farooqui

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Today’s decision to hold rates will come as a disappointment to anyone hoping to get into the housing market, says Shaun Cathcart, senior economist at the Canadian Real Estate Association.

He says the Bank of Canada’s announcement also signalled that inflationary pressures could keep rates steady for longer, too.

“Surveys show that consumers expect inflation from tariffs and that businesses have said they will raise prices,” said Mr. Cathcart, referring to data from today’s BoC announcement.

“So what the bank is signalling is that they expect hotter inflation to come and it’s not a recipe for any kind of big rate cuts going forward,”

Despite those headwinds, Mr. Cathcart does believe the Canadian housing market has potential to heat up marginally this year.

Mortgage rates have already come down to a level that most analysts believed would revive the market, and economic uncertainty has been the main factor holding buyers back.

Mr. Cathcart says he expects consumer sentiment will improve. Already, early CREA data shows that May could be the first month where sales increase month-over-month since November.

However, sales are still very low across the country, and Mr. Cathcart doesn’t expect any kind of major rush from buyers unless rates drop by at least a full percentage point -- a level of cutting that is not currently expected in 2025.

“It’s a huge climb back to normal.” he said.

06/04/25 11:03

Macklem on the need for a trade deal

– Mark Rendell

“Looking forward, if Canada can get a renewed trade agreement with the United States that reduces uncertainty, the rules are clearer, and that has durability, I think that will help everybody get on with decisions … and you’ll see some rebound in activity that hasn’t happened yet. The prospect is there, the sooner that happens, the better. We’re certainly like everybody else, we’re watching announcements coming out of the White House very closely.”

06/04/25 10:58

Macklem on trade uncertainty

– Matt Lundy

“Look, uncertainty is bad for business. It’s bad for households. If you’re a business and you don’t know how much demand there’s going to be for your product, you’re obviously going to be much less [likely] to invest. Uncertainty delays investment, it makes households more cautious. So yes, that will tend to weaken activity. And yes, you’re seeing that in the Canadian economy.”

06/04/25 10:56

Macklem on the state of the economy

– Mark Rendell

“The Canadian economy is showing some resilience to tariffs. Yes, consumption was softer in the first quarter. You can see the impact of tariffs on consumption. But, you know, despite a really big drop in consumer confidence, consumer spending did continue to grow in the first quarter, business investment was actually a bit stronger than we expected in the first quarter. So, you can definitely see the impact of tariffs. But you know, there is some resilience. Having said that, look, the longer these tariffs go on, the longer this uncertainty goes on, the more it’s going to weigh on the Canadian economy, the more that is going to put downward pressure on inflation. And we will be watching that very carefully. But we are also conscious that there are cost effects of tariffs. We’re seeing that already in the trade disruption. What we’re hearing from firms is that the trade disruption is already adding costs. They’re looking for new suppliers. They’re developing new markets. That’s adding costs and the retaliatory tariffs put in place. That is not yet in the CPI data that we have. You will see that start to come in the months ahead. So we will be looking at both those things. And as I discussed in the opening statement in our deliberations, we did talk about the future path, and the Governing Council thought that there could be a need for a further reduction in the interest rate, if the tariffs continue, if that creates more weakness in the Canadian economy, and if the cost pressure is coming through inflation are contained.”

06/04/25 10:54

Macklem on the delayed federal budget

– Matt Lundy

“With respect to the government’s plan to have a budget in the fall, to be frank, the budget is not the biggest source of uncertainty facing the Canadian economy – it’s U.S. tariffs.”

06/04/25 10:46

Macklem’s comments on inflation

– Matt Lundy

Tiff Macklem on inflation:

With a range of CPI measures, “what you can see is they all moved up in April. That has got our attention. … The fact that quite a number of measures of core or alternative measures of core, all moved up, does make you think that underlying inflation could be a little bit firmer than we thought. So, that is something we will be watching.”

06/04/25 10:41

Economists react to the BoC rate pause

– Mark Rendell

Douglas Porter, chief economist at Bank of Montreal

“The Bank’s rate decision and commentary were right down the middle of the plate, delivering few surprises. While the forward-looking statement suggests that Governing Council is not eager to cut much further, we suspect that a combination of softer activity and milder core inflation trends will prompt additional action. If inflation slows over the next couple of prints (we get two CPI releases and two jobs reports before the late-July meeting) and the economy slows as widely expected (we have much higher conviction on the latter than former), the door is still wide open for the BoC to cut rates in July.”

Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce

“A widely expected stand-pat decision on rates didn’t put a nail in the coffin for a further easing by the Bank of Canada, with its announcement still noting risks to growth ahead. The opening statement to the press conference noted that members of its Governing Council were aligned on a decision to pause today, but while divided, “on balance” they seemed to expect that a further easing could prove necessary. In line with its recent messaging, the Bank continues to await greater clarity on various policy fronts, and weigh risks of tariff-driven inflation against the downward inflation pressure of economic slack. The statement noted the mixed picture for growth in Q1 and its expectation that Q2 will be considerably weaker, but also the upward move in some core inflation measures, and its press statement said that they judged that underlying inflation might be firmer than they thought. July looks more promising for a quarter-point ease if, as we expect, the jobless rate continues to move higher, and inflation in items not subject to tariff pressures eases off a bit.”

Royce Mendes, head of macro strategy at Desjardins

“Although monetary policymakers proved reluctant to offer the economy a helping hand today, we continue to expect that the Bank of Canada will be forced to cut rates another 75 basis points this year. The rationale for holding rates steady today is already on shaky ground. Macklem cited the resilience in exports as a reason not to cut, but the latest U.S. trade data show a sharp reversal in imports. Moreover, Statistics Canada noted that the machinery and equipment spending that showed up in Q1, which Macklem pointed to as a positive surprise, looked like it was tied to buyers front-running Canada’s retaliatory tariffs. As a result, early indications point to a sharp reversal in exports and business investment in the second quarter, which will compound the ongoing weakness in Canada’s housing market. Overall, the domestic economy continues to look very frail. Unless underlying inflationary pressures prove much stickier-than-expected, a return to rate cuts shouldn’t be far off.”

Thomas Ryan, North America economist at Capital Economics

“Given recent signs of weakness in the economy – particularly in the labour market and areas like housing and manufacturing – it was perhaps surprising to see that the accompanying statement was not more downbeat on the growth outlook. It noted that “the Canadian economy was softer but not sharply weaker.” The tone of Governor Mackem’s opening statement to the press conference was decidedly more dovish, however, noting that “businesses are generally telling us that they plan to scale back hiring” and “domestic spending will remain subdued.” With the closely watched final paragraph unchanged, explaining that the Bank will continue to weigh up downside risks to the economy from tariff uncertainty and upside inflation risks, we continue to take our cue from this deteriorating growth outlook. We judge that three more rate cuts this year are still on the table, with the first of those arriving next month, which would bring the policy rate down to 2.0%.”

Leslie Preston, managing director and senior economist, Toronto-Dominion Bank

Looking ahead though, members of Governing Council thought there could be a need for a reduction in the policy rate if the economy weakens and inflation is contained. But, that the Bank is being less forward-looking than usual given the high degree of uncertainty on what the tariff picture looks like. We expect that barring a trade negotiation miracle with the Trump administration, Canada’s economy is likely to tip into recession this year, and more interest rate cuts will be required.”

06/04/25 10:34

Markets, Canadian dollar after today’s Bank of Canada rate hold

– Scott Barlow

Government of Canada bond traders did a bit of repositioning on the Bank of Canada hold announcement. The two-year bond yield was yielding 2.637 per cent as of 8:00 a.m. and has drifted lower by about four basis points on the news. The yield is already substantially lower than 12 months ago when it traded at roughly 4 per cent.

The loonie has done a whole lot of nothing since the hold announcement, remaining in an extremely tight 10 thousandths-of-a-cent range between US$0.7295 and US$0.7305.

The loonie has been rallying of late, climbing US$0.04 since early March. Global hedge funds had been extremely short the loonie as of late July, 2024. They were forced to cover these trades because of the rally but were beginning to load back up on shorts as of the most recent data. We will see when the new data is released by the Commodity Futures Trading Commission if the Bank of Canada decision affects the trend.

06/04/25 10:31

Rough signs for inflation

– Matt Lundy

Where is inflation heading? For the Bank of Canada, this question is paramount – and lately, the signs aren’t great.

Looking beyond the removal of the consumer carbon price, inflation seems to be heating up. Once taxes are removed, the annual change in the Consumer Price Index was 2.3 per cent in April, edging up from 2.1 per cent in March.

“Higher core inflation can be partly attributed to higher goods prices, including food, and may reflect the effects of trade disruption,” Bank of Canada Governor Tiff Macklem said in the prepared remarks of his opening statement on Wednesday. “Many businesses report they are already facing higher costs related to finding alternative suppliers and developing new markets.”

Mr. Macklem said it’s “still too soon” to see the effects of how Canada’s retaliatory tariffs on the United States are affecting consumer prices. Policymakers have targeted billions of dollars of U.S. imports with 25-per-cent duties – although, there are ample exceptions to these rules and plenty of confusion over what qualifies.

But the main message is that, in a world where goods flow less freely, prices jump and economic growth stumbles.

Loblaw Cos. Ltd. warned in May that some grocery prices will be heading higher because of tariffs. On earnings calls, a surge of executives have mentioned tariff surcharges – or put differently, passing on higher costs to consumers.

Some analysts expected the Bank of Canada to bring interest rates down to 2 per cent by the end of the year. If inflation heats up, that scenario will prove far-fetched.

06/04/25 10:27

A rate hold complicates the math for homeowners with upcoming mortgage renewals

– Erica Alini

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A rate hold by the Bank of Canada doesn’t help the homeowners who are facing a mortgage renewal in the next few weeks.

The bulk of people who took out or renewed a five-year, fixed-rate mortgage during the pandemic at very low interest rates are headed for a payment increase as those loans renew this year or the next.

Luckily, steep interest rates declines over the past year-and-a-half have shrunk the gap between pandemic-era mortgage rates and the higher rates available on renewing loans. The dreaded “mortgage renewal cliff” economists had warned about a couple of years ago doesn’t seem to have materialized.

Nonetheless, many of those households will still face a hefty mortgage payment bump.

An interest rate cut by the Bank of Canada would have pulled down rates on variable-rate mortgages. (The interest rate level on fixed-rate mortgages, on the other hand, depends primarily on trends in the bond market).

For now, though, variable-mortgage rates remain slightly higher than fixed rates – hardly a compelling choice for those with upcoming renewals.

06/04/25 10:16

Key quotes from Tiff Macklem’s press conference opening statement

– Mark Rendell

Where are interest rates going?

“At this decision there was a clear consensus to hold policy unchanged as we gain more information. We also discussed the path ahead for the policy interest rate. Here, there was more diversity of views. On balance, members thought there could be a need for a reduction in the policy rate if the economy weakens in the face of continued US tariffs and uncertainty, and cost pressures on inflation are contained.”

On U.S. tariffs

“The trade conflict initiated by the United States remains the biggest headwind facing the Canadian economy. Since our April decision, the U.S. administration has continued to increase and decrease various tariffs. China and the United States have stepped back from extremely high tariffs, and bilateral trade negotiations have begun with a number of countries. The extreme financial turmoil we saw in April has moderated and stock markets have recovered their losses. However, the outcomes of the trade negotiations are highly uncertain, tariffs are well above their levels at the beginning of 2025, and new trade actions are still being threatened. The recent further increases in U.S. tariffs on steel and aluminum underline the unpredictability of U.S. trade policy.”

On the state of the Canadian economy today

“The flip side of the strength in U.S. imports was a surge in Canadian exports. This boosted first-quarter GDP growth in Canada, which came in at 2.2 per cent, slightly stronger than the Bank had forecast. The composition of growth was largely as expected. Exports and inventories were strong but final domestic demand was roughly flat. Strong spending on machinery and equipment held up growth in business investment by more than expected. Consumer spending slowed from a very strong fourth-quarter pace, but continued to grow despite a sharp drop in consumer confidence. Housing activity contracted as resales fell significantly, and government spending also declined.”

“The labour market has weakened, with job losses concentrated in trade-intensive sectors. The unemployment rate rose to 6.9 per cent in April. So far, employment has held up across sectors that are less exposed to trade. But businesses are generally telling us that they plan to scale back hiring.”

Where is the economy headed?

“The pull forward in exports and inventory accumulation in the first quarter borrows economic strength from the future, so the second quarter is expected to be much weaker. Spending by Canadian families and businesses has shown some resilience in the face of U.S. tariffs and heightened uncertainty. But they are likely to remain cautious, suggesting domestic spending will remain subdued.”

What’s happening to inflation?

“It is still too soon to see the direct effects of retaliatory tariffs in consumer price data. What we can see clearly is the impact of the elimination of the consumer carbon tax. This knocked 0.6 percentage points off inflation in April, largely due to lower gasoline prices, and pulled headline inflation down to 1.7 per cent. This tax effect will remain in the year-over-year change in the CPI for the next 11 months before falling out next April.”

“Inflation excluding taxes was 2.3 per cent in April, slightly stronger than the Bank had expected and up from 2.1 per cent in March. The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up in April. There is some unusual volatility in inflation, but these measures suggest underlying inflation could be firmer than we thought. Higher core inflation can be partly attributed to higher goods prices, including food, and may reflect the effects of trade disruption. Many businesses report they are already facing higher costs related to finding alternative suppliers and developing new markets. The Bank will be watching measures of underlying inflation closely to gauge how inflationary pressures are evolving.”

06/04/25 10:01

BoC’s decision to remain paused is a big win for Canadians nervous about the U.S. trade war

– Rob Carrick

The decision by the Bank of Canada to hold its benchmark overnight rate steady is a big win for people feeling nervous about the trade war and its effects on the economy.

Leaving rates unchanged means no relief for people with floating-rate debt like variable-rate mortgages and lines of credit. But for savers, the status quo is not half bad.

Savings accounts are having a moment in these uncertain times. Holdings in both savings and chequing accounts in March were 6.9 per cent higher in March than a year earlier. Rates have been edging lower in the past year, but the appeal of safely parked money grows.

Roughly six alternative banks offered savings rates of 2.75 per cent or more as of Wednesday, which means a decent real return after factoring in an April inflation rate of 1.7 per cent.

Investors have been avid users lately of fund products that hold cash in low-risk assets like big bank savings accounts, treasury bills issued by the federal government and short-term borrowings from financially strong companies. Current yields on these products are in the 2.25- to 2.8-per-cent range, which again leaves at least something after inflation.

In leaving rates untouched, the Bank of Canada essentially said the economy is holding its own for now. But the unemployment rate has been rising in recent months as employers react to trade war uncertainty and disruption. Where possible, topping up your savings is the best defence for your household finances.

06/04/25 09:47

Bank of Canada holds interest rate at 2.75%, cites “unusual uncertainty”

– Nojoud Al Mallees

The Bank of Canada held its key interest rate steady at 2.75 per cent for the second consecutive time, citing continuing uncertainty and an economy that continues to chug along.

The decision on Wednesday was in line with financial market expectations, which favoured a hold after recent strong-than-expected economic data.

“With uncertainty about U.S. tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, governing council decided to hold the policy rate as we gain more information on U.S. trade policy and its impacts,” the central bank said in a news release.

The Bank of Canada held its key interest rate in April as well, pointing to the same trade uncertainty that contributed to its decision on Wednesday. The central bank is suggesting that economic data since then hasn’t fuelled urgency for rate cuts.

The elimination of the consumer carbon price brought down Canada’s inflation rate in April to 1.7 per cent, however underlying price pressures were firmer, with the central bank’s preferred measures of core inflation up that month. Meanwhile, the economy grew at 2.2 per cent in the first quarter, a slightly higher rate than the Bank of Canada forecast as exports increased ahead of tariffs.

In his prepared opening remarks, Governor Tiff Macklem says that there was “clear consensus” to hold the policy rate, but that there was a “diversity of views” on the path ahead for interest rates.

“On balance, members thought there could be a need for a reduction in the policy rate if the economy weakens in the face of continued U.S. tariffs and uncertainty, and cost pressures on inflation are contained,” Mr. Macklem said.

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

06/04/25 09:18

BoC continues to navigate without a chart

- Mark Rendell

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Economic forecasting is a questionable science at the best of times. In a trade war with a formidable but fickle opponent, who changes his mind every week, it’s a mug’s game.

The Bank of Canada arrived at this conclusion in April. Instead of publishing a central forecast in its quarterly monetary policy report (MPR), it outlined an upside and downside scenario for the Canadian economy, each dependent on what happens with U.S. trade policy.

 In the more optimistic scenario, where most tariffs are lifted, Canada would likely avoid a recession and inflation would remain under control. In the darker scenario, where Mr. Trump escalates his trade war with his neighbours and the rest of the world, Canada could fall into a year-long recession and inflation could rise above 3 per cent as tariffs, countertariffs and supply-chain disruptions drive up prices, the bank said.

“We’re still somewhere in between those, but I think the direction of travel has been more toward scenario one,” Governor Tiff Macklem said in an interview with The Globe and Mail at the end of the G7 central bankers and finance minister’s meeting in Banff last month.

The bank won’t publish a new MPR today. The next one will be released at the July 30 rate decision.

“My hope is that by the time we get to July, we can move back to a more conventional forecast, or at least a central scenario with perhaps a couple of risk scenarios around that,” Mr. Macklem said. “I just hope I’m not disappointed in that hope.”

06/04/25 08:54

Mortgage rates, and the main question around BoC’s rate decisions this year

– Salmaan Farooqui

The main question around the Bank of Canada’s rate decisions this year is how they will balance a struggling economy and inflation -- two diverging factors resulting from the global trade war that the U.S. government has embarked on.

On one hand, high unemployment and weak growth would be cause for the BoC to cut interest rates to try and spur the economy. On the other, the best way for the bank to hold back inflation is to hold rates where they are.

In May, we saw evidence that this dilemma is coming to a head. First, the federal jobs report came in worse than expected, with the unemployment rate rising to 6.9 per cent. Then, later in the month, inflation numbers were hotter than expected with core inflation at 2.9 per cent and grocery inflation at 3.8 per cent.

Bond markets seem to have put more emphasis on the inflation risk, as yields for the Government of Canada five-year bond rose to the 2.9-per-cent level. That could lead to more increases in fixed mortgage rates.

If the BoC settles on holding rates, it could also mean less relief for variable mortgage rates.

Read more about mortgage rates and today’s BoC decision here.

06/04/25 08:28

Trump hikes steel and aluminum tariffs to 50%

– Adrian Morrow, Jason Kirby and Steven Chase

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U.S. President Donald Trump has jacked up steel and aluminum tariffs to 50 per cent, an escalation of his global trade war that will disproportionately hammer the Canadian economy.

Intergovernmental Affairs Minister Dominic LeBlanc rushed to Washington Tuesday in a last-ditch bid to plead Canada’s case with U.S. Commerce Secretary Howard Lutnick. But Mr. Trump signed an executive order raising the levies shortly after, with the new rate taking effect at 12:01 a.m. ET Wednesday.

The President first imposed the tariffs at 25 per cent in March. Canada is the largest supplier of both steel and aluminum to the United States, accounting for about half of aluminum imports last year and nearly 25 per cent of steel imports in 2023.

Mr. Trump has said his goal is to stop imports of the metals into the U.S. in a bid to return manufacturing jobs to his country. The tariffs could, however, backfire on the U.S. by inflating prices for consumers.

Read the full story here.

06/04/25 08:15

Markets and analysts expect a pause today, more cuts later this year

- Mark Rendell

After the last rate announcement in April, financial markets expected the next Bank of Canada decision would be a coin-toss. Since then, investors have pared their bets on another rate cut on June 4, following a jump in core inflation in April and sturdy first-quarter GDP numbers published Friday.

Interest rate swaps markets, which capture market expectations of monetary policy, put the odds of a quarter-point cut today at around 30 per cent, according to LSEG data. Investors see the bank resuming its easing cycle next month, with swap markets pricing in a roughly 60-per-cent chance of a cut on July 30.

Bay Street economists are looking for a similar outcome. Twenty out of 26 analysts polled by Reuters last week said they expect the bank to remain on hold today, with the remainder pencilling in a quarter-point cut. The majority expect the bank to resume cuts in the coming months and to cut two more times before the end of the year.

06/04/25 07:00

Bank of Canada expected to remain on pause

- Mark Rendell

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The Bank of Canada is widely expected to stand pat this morning as it weighs hotter-than-expected inflation and sturdy GDP numbers against rising unemployment and the evident drag caused by U.S tariffs.

The central bank held its policy rate at 2.75 per cent in April after cutting seven consecutive times. Governor Tiff Macklem said at the time that the bank needed more space to assess the impact of U.S. President Donald Trump’s changing trade policy.

Seven weeks on, the risk of a full-blown global trade war has fallen, but uncertainty remains. Mr. Trump has struck a temporary truce in his trade war with China, and offered some tariff relief to important Canadian industries, such as auto part manufacturers. But the President continues to ratchet up other tariffs, including doubling the levy on steel and aluminum this week.

All of this makes it challenging for the Bank of Canada to assess where the Canadian economy is heading and to set monetary policy accordingly. We could be careening towards a recession, or a period of relatively solid growth. A lot depends on the whims of the White House.

Amid the uncertainty, the bank is putting more emphasis on the flow of data, rather than forecasts. Here the picture has been mixed. Headline inflation fell to 1.7 per cent in April – below the bank’s 2-per-cent target – thanks in large part to the end of the federal carbon tax, which lowered gasoline prices. However, the bank’s preferred core inflation measures, which capture underlying price trends, ticked above 3 per cent.

Meanwhile, the job market has soured, with unemployment rising to 6.9 per cent amid job losses in manufacturing industries hit by U.S. tariffs. But gross domestic product growth came in at a solid 2.2-per-cent annualized rate in the first quarter, thanks to a surge in exports as companies raced to front-run tariffs.

Whether the bank’s governing council remains on hold or cuts by another quarter-point cut will depend on how they gauge the upside risk of inflation against the downside risks to jobs and growth.

The announcement is at 9:45 a.m., followed by a press conference by Mr. Macklem and senior deputy governor Carolyn Rogers at 10:30 am.

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