After spending the last few weeks discussing the value of building portfolios with five to six asset classes, rather than the traditional one or two, we’re circling back to share our latest thoughts on the economy. As we head into the fall, there are meaningful shifts underway in both Canada and the U.S. While the headlines may seem mixed, the overall tone remains cautiously constructive on both sides of the border.

Canada: Resetting Trade, Staying Resilient

Last Friday, Prime Minister Mark Carney announced that Canada is dropping all reciprocal tariffs on goods covered under CUSMA. This marks a significant and strategic move to reset relations with the U.S. ahead of the 2026 review. With total tariffs now just 5.6%, Canada holds the lowest effective tariff rate globally, giving it a clear competitive edge.

Domestically, inflation continues to cool. July’s CPI headline came in at 1.7% year-over-year, helped by lower gas prices and the April carbon tax rollback. While markets aren’t fully pricing in a Bank of Canada cut at the September 17 meeting, recent inflation data makes that outcome more plausible. The Canadian economy has held up better than expected, and early signs suggest bank earnings this quarter should reflect that underlying strength.

U.S.: A Measured Moderation

South of the border, the data tells a story of moderation, not weakness. Yes, job growth has softened, and the quit rate has been trending lower, but job losses remain minimal, and the consumer is still holding up well. Strong equity markets are boosting confidence via the wealth effect, even as wage growth normalizes.

At Jackson Hole, Fed Chair Jerome Powell acknowledged that policy may now be restrictive enough and left the door open for a September rate cut. His tone was balanced, recognizing softer labor data without signaling concern. Markets welcomed the flexibility, especially with more key data due before the next Fed meeting.

The Bottom Line:

Canada is leaning into trade diplomacy with renewed momentum, while the U.S. is moving from expansion to equilibrium. Consumers remain resilient, and central banks appear willing to act if needed.