BoC and Fed expected to hold interest rates steady amid trade uncertainty

The Bank of Canada and the U.S. Federal Reserve are both expected to keep policy rates unchanged on Wednesday; the BoC points to muted growth and cooling core inflation while the Fed faces political pressure and mixed U.S. data.

The Bank of Canada and the U.S. Federal Reserve are both expected to keep interest rates unchanged on Wednesday. The BoC is settling into an extended hold after a series of cuts in 2024 and signalled little near-term change. The Fed has moved back toward the sidelines after recent cuts, but it is operating amid political scrutiny and questions about leadership when Jerome Powell's term ends in May. Ongoing uncertainty about North American trade is a notable factor for Canadian businesses. Key details: - The Bank of Canada held its policy rate at 2.25 per cent in December after nine cuts since the summer of 2024 and signalled further moves are unlikely in the near term. - Canada’s economic growth is muted, unemployment is elevated, and annual CPI inflation rose to 2.4 per cent in December while core inflation measures moved lower. - Financial markets expect the BoC to remain on hold through 2026, with a small chance of a quarter-point hike in December, according to Bloomberg data. - The U.S. Federal Reserve cut rates three times by a quarter point in December to a target range of 3.5–3.75 per cent and has since seen stronger-than-expected U.S. GDP and jobs data that support a pause. - Political developments, including threats of tariffs and legal and staffing disputes involving the U.S. administration, have increased pressure on the Fed and added uncertainty to the policy outlook. Summary: Central banks are likely to stand pat at their upcoming meetings, leaving markets focused on how inflation, employment and trade developments evolve. The Bank of Canada will publish a new quarterly Monetary Policy Report on Wednesday with updated forecasts, and the Fed faces a near-term pause alongside ongoing questions about leadership and related legal matters.