- The Bank of Canada announced a 25 basis point cut to its key benchmark rate, bringing it down to 3.0 per cent
- This decision comes at a critical time, as it is the first rate announcement and economic projection since the inauguration of U.S. President Donald Trump, who has been vocal about imposing tariffs on Canadian imports
- Economists warn that such tariffs could severely impact Canadian exports, which account for roughly 20 per cent of the country’s GDP
- Later today, the U.S. Federal Reserve will unveil its first monetary policy decision for 2025
The Bank of Canada announced a 25 basis point cut to its key benchmark rate, bringing it down to 3.0 per cent.
This marks the central bank’s sixth consecutive rate cut since June 2024, reducing the rate by a total of 200 basis points over the past seven months.
In a statement to media, the central bank forecasts GDP growth will strengthen in 2025. It was admitted that, with slower population growth because of reduced immigration targets, both GDP and potential growth will be more moderate than what was expected.
This decision comes at a critical time, as it is the first rate announcement and economic projection since the inauguration of U.S. President Donald Trump, who has been vocal about imposing tariffs on Canadian imports. Trump’s latest threat of a 25 per cent tariff on Canadian goods, set to take effect on February 1st, has created significant uncertainty for businesses, investors, and just about everyone else.
Impact of potential U.S. tariffs
The looming threat of U.S. tariffs has cast a shadow over Canada’s economic outlook. Economists warn that such tariffs could severely impact Canadian exports, which account for roughly 20 per cent of the country’s GDP. A 25 per cent tariff could lead to higher costs for Canadian goods in the U.S. market, making them less competitive and potentially triggering a slowdown in economic growth.
Monetary policy decision under economic uncertainty
The bank’s decision to cut rates reflects its attempt to navigate the economic uncertainty brought about by the new U.S. administration. Governor Tiff Macklem emphasized the need for a cautious approach, given the unpredictable nature of U.S. trade policies.
The next scheduled date for announcing the overnight rate target is March 12th, 2025
Looking ahead: U.S. Federal Reserve’s decision
Later today, the U.S. Federal Reserve will unveil its first monetary policy decision for 2025. This will be the Fed’s first policy verdict since Donald Trump took office as the 47th U.S. President on January 20th. Wall Street anticipates that the Fed will leave the federal funds rate unchanged, maintaining the current range of 4.25 per cent to 4.50 per cent, as policymakers wait for further progress toward their 2 per cent inflation target.
The outcome of the Fed’s decision will be closely watched by global markets, as it could provide further insights into the direction of U.S. economic policy under the new administration.
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(Top image via the Bank of Canada.)