Global attention turns to North America today, with both the BoC and the Fed expected to deliver 25bps rate cuts. The BoC’s decision will come first at 13:45 GMT, followed by the Fed’s announcement later at 18:00 GMT.
The BoC’s overnight rate is widely expected to fall to 2.25%, reflecting the bank’s persistent concern about growth despite recent resilience in jobs and inflation data. Policymakers remain uneasy about the impact of U.S. tariffs and weak domestic demand, even as headline inflation overshoots target. For Governor Tiff Macklem and his team, the near-term goal remains cushioning the economy without reigniting price pressures.
Most analysts expect today’s cut to be the final one of this cycle, with the BoC likely to enter a prolonged pause. A Reuters poll showed 21 of 34 economists forecasting rates at 2.25% by the end of 2026, implying stability for an extended period. Only eight respondents saw further easing to 2.00% or below.
Still, the balance of risks leans dovish, as agreed by most, and a terminal rate at 2.00% is a real possibility. Growth remains soft, exports are vulnerable to trade restrictions, and business confidence has yet to rebound. Policymakers are likely to leave the door open for further cuts without explicitly signaling another move.
Attention will then shift to the Fed, which is widely expected to lower the federal funds rate to 3.75–4.00%. Futures markets also price in a 90% probability of another 25bps cut in December, taking the target range to 3.50–3.75%.
However, the 2026 policy path remains clouded by diverging risks — inflation could reaccelerate if tariffs bite harder, even as the labor market shows signs of fatigue. A recent Reuters survey reflected this uncertainty, showing economists split seven ways on where rates might stand by the end of next year — anywhere between 2.25%–2.50% and 3.75%–4.00%.
The debate has been complicated further by speculation over who will replace Chair Jerome Powell when his term ends in May. Treasury Secretary Scott Bessent confirmed earlier this week that the shortlist includes Fed Governors Christopher Waller and Michelle Bowman, National Economic Council Director Kevin Hassett, former Fed Governor Kevin Warsh, and BlackRock executive Rick Rieder, all representing slightly different shades of monetary philosophy.
Given that backdrop, Powell is unlikely to make any firm commitments on policy beyond today’s meeting. Markets will instead look to the December Summary of Economic Projections and updated dot plot for clarity on the 2026 rate path.
In the currency markets, USD/CAD has weakened sharply just ahead of the twin policy events, hovering just above 1.3930 support after yesterday’s selloff. A rebound from current levels would keep the broader uptrend from 1.3538 intact, with a break above 1.4006 suggesting the rally’s resumption through 1.4078.
Conversely, decisive break below 1.3930 would signal that the advance has likely topped, opening the way for a deeper pullback toward the channel floor near 1.3829, where the next key directional cue will emerge.
Bundesbank Weidmann: Worries of slowdown are exaggerated
Bundesbank head Jens Weidmann tried to talk down worries over Eurozone growth slow down. He said “some observers already see evidence of an approaching end to the upswing in the recent economic slowdown:”. He added “however, I think such worries are exaggerated.”
He also said expectations of an ECB hike towards mid-2019 remain realistic.