The Bank of Canada is expected to end the year back on the sidelines, likely holding interest rates steady on Wednesday after a string of surprisingly sturdy economic reports.
The central bank cut its benchmark policy rate to 2.25 per cent in October, but indicated that this would likely be the last cut in an easing cycle that began a year-and-half earlier.
Since then, inflation, economic growth and employment data have all surprised to the upside, suggesting the Canadian economy has weathered U.S. tariffs better than expected in recent months.
After four rate cuts this year – and nine as the summer of 2024 – markets now believe the central bank will remain on hold though most of next year,with the next move more likely to be a hike than a cut,according to Bloomberg data.
the story is different south of the border, where the U.S. Federal Reserve will announce its latest rate decision on Wednesday afternoon.
Having cut fewer times than the Bank of Canada, the Fed’s monetary policy stance remains restrictive, even as the U.S. labor market has weakened. Investors are betting the U.S. central bank will cut by another quarter-point this week, taking the federal funds target range to 3.5 per cent to 3.75 per cent.
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“our base case forecast a month ago did not assume a December cut from the fed, given inflation in the U.S. remains above the central bank’s 2 per cent target, and Chair Jerome Powell’s comments at the last meeting about cautiously proceeding in a foggy environment,” Royal Bank of Canada economists Nathan Janzen and Claire Fan wrote in a note to clients, referring to the U.S. government shutdown which limited the release of economic data.
But it was always going to be a close call, Mr. Janzen and Ms. Fan wrote, and recent interaction from Fed committee members suggests a cut is coming. “With some softer data during the blackout, we doubt the hawks will put up a major fight,” they said.
Looking further ahead, the trajectory for U.S. monetary policy is elaborate by questions around who will succeed Mr. powell as Fed chair when his term ends next spring.
The leading candidate is widely believed to be Kevin Hassett, a close ally of U.S. President Donald Trump and director of the National Economic Council. He is seen by many analysts as a dovish choice who would
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