Canada and US Rate Cuts: A Turning Point for Monetary Policy?

To no one’s surprise, both the Bank of Canada (BoC) and the US Federal Reserve took a notable step in their respective monetary policy trajectories earlier this week, each announcing a 25-basis point reduction to their benchmark interest rates. These moves, while broadly anticipated, signal a strategic pivot as central banks respond to evolving macroeconomic conditions.

Bank of Canada: Recalibrating in Response to Cooling Data

The Bank of Canada lowered its policy rate to 2.50%, marking its first cut since earlier this year (March). The decision follows a string of weaker-than-expected economic indicators, particularly in core inflation, labour market softness, and muted consumer spending. The Bank cited “a weakening economy and reduced inflationary pressure” as the catalyst for easing.

For borrowers, particularly those with variable-rate financing or upcoming mortgage renewals, this move offers some near-term relief. However, for high-net-worth individuals with more complex credit or investment portfolios, the broader takeaway is that the BoC is likely to remain measured in its easing approach. Market pricing already suggests a second cut in October, though the Bank is nearing a neutral stance, which could constrain how far it ultimately goes.

Federal Reserve: Managing Risk Amid Slowing Growth

In the United States, the Federal Reserve cut its target range to 4.00-4.25%, characterizing the move as a “risk management” strategy in light of slower GDP growth, moderating inflation, and a softening labour market. The Fed’s latest dot plot suggests a majority of FOMC participants anticipate two additional cuts by year-end, indicating a shift toward a more accommodative stance, though there remains considerable divergence among policymakers.

While inflation remains above target, the Fed appears increasingly focused on fulfilling the employment side of its dual mandate, particularly as job creation stalls and unemployment begins to trend upward. Fed Chair Powell was clear that the path forward remains data dependent, though absent a sharp inflationary surprise, the easing cycle is likely to continue.

Strategic Considerations

We view these rate cuts not as a return to ultra-loose policy, but as a recalibration toward neutral. For investors, this environment underscores the importance of portfolio flexibility. Fixed income markets are already adjusting, with expectations of a lower-for-longer rate environment supporting select credit strategies. Meanwhile, US equity markets may benefit from improved liquidity conditions, though macro uncertainty still warrants a measured approach.

Moving forward, we are closely monitoring the evolving economic landscape and are remaining cautiously optimistic as we head into the final quarter of the year.

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