Eric Herzberg
(Bloomberg) — The Bank of Canada is likely to keep interest rates steady on Wednesday as evidence mounts that the country’s labor market and economy are stabilizing after the initial tariff shock.
Markets and economists surveyed by Bloomberg expect Gov. Tiff Macklem and his officials to keep the policy rate at 2.25% on Wednesday. In October, policymakers signaled reluctance to pursue further stimulus, saying borrowing costs would be at “about the right level” if their forecasts of growth and price pressures materialized.
Since then, gross domestic product, inflation and employment have all exceeded expectations, suggesting a more resilient economy. The challenge for McCollum now is to emphasize that the easing cycle may be over while still acknowledging that significant risks to U.S. trade policy remain, adding to uncertainty in officials’ forecasts.
“I expect the tone to be constructive, almost triumphal,” said Andrew Kelvin, head of Canadian and global rates strategy at TD Securities. “Central banks will be cautious in stating that trade disruptions pose ongoing risks to the economy, but they must take note of recent improvements in employment and activity data.”
Economists generally believe the bank is done cutting rates, with a Bloomberg survey of 14 analysts, including those at Canada’s five largest banks, showing it will keep rates on hold until 2026.
As the economy began to be hurt by U.S. trade policy at the start of the year, officials were quick to say supply shocks were limiting their ability to support growth due to inflationary risks from global tariffs.
However, supported by a sharp decline in imports, GDP grew at an annual rate of 2.6% in the third quarter. Home sales are recovering and Prime Minister Mark Carney’s fiscal spending, including major defense equipment purchases, is already showing in the data.
Officials must also address Statistics Canada’s upward revisions to the size of the country’s economy over the past few years, which have boosted per capita growth and productivity measures. Two-thirds of respondents to the survey said the revisions narrowed or completely eliminated the economy’s output gap.
Still, domestic demand remained weak, with household consumption falling in the third quarter. Although the United States has significant exemptions from tariffs on goods traded under the United States-Mexico-Canada Agreement, industries such as steel, automobiles and lumber have been hit hard, and business investment has stalled amid uncertainty.
More than half of respondents said they expect the central bank to start raising interest rates in the first half of 2027. Markets are pricing in rate hikes starting late next year, but Kelvin believes officials will avoid signaling such a shift on Wednesday. “Given the weakness in the economy, it’s too early for them to start signaling future rate hikes,” he said.
Last week’s labor force data also showed resilience – the unemployment rate unexpectedly fell to 6.5%, the lowest level since July 2024, and the economy added more than 180,000 jobs from September to November.
Economists remain divided over the transparency of how the central bank currently measures underlying inflationary pressures. In recent communications, policymakers have placed less emphasis on what they call their preferred adjustment and median core measures, which stand at an annual rate of 3% and say underlying inflation is closer to 2.5%.
“With stronger-than-expected consumer and government spending in 2026, core inflation is likely to be stickier than the central bank hopes in the future,” RBC economists Nathan Janzen and Claire Fan wrote in a note to investors.
Nearly three-quarters of respondents said the annual change in the consumer price index excluding food and energy would be a sufficient proxy for core inflation.
The decision will be released in Ottawa at 9:45 a.m., followed by McCallum and Senior Deputy Premier Caroline Rogers speaking to reporters at 10:30 a.m.
–With assistance from Dana Morgan and Mario Baker Ramirez.
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Last modified: December 9, 2025
