Central Banks Hit Pause - Now What?

This week, both the Bank of Canada (BoC) and the U.S. Federal Reserve chose to hold interest rates steady, a widely expected outcome, but one that carries important implications for investors navigating an increasingly uncertain global backdrop.

In Canada, the BoC maintained its overnight rate at 2.25%, highlighting “heightened uncertainty” as a key constraint on future policy decisions. Trade negotiations surrounding the Canada-U.S.-Mexico Agreement (CUSMA) remain unresolved, limiting the Bank’s ability to confidently signal its next move. Governor Tiff Macklem emphasized that elevated uncertainty makes it difficult to predict either the timing or direction of future rate changes. Many economists now expect the BoC to remain on hold well into 2026.

There was also a subtle but notable shift in the Bank’s messaging on inflation. Inflation is now described as “close to the 2% target,” rather than “around 2.5%,” suggesting reduced concern about inflationary pressures and greater sensitivity to downside risks to growth. While monetary policy cannot undo structural challenges such as tariffs or target specific sectors, it can play a supportive role as the economy adjusts.

For housing, stable rates offer some clarity. Although affordability remains stretched, the absence of further rate hikes may encourage buyers who have been waiting on the sidelines to re-enter the market, particularly as expectations around rate stability firm up.

South of the border, the U.S. Federal Reserve also held its benchmark rate at 3.5%-3.75%, pausing after several cuts last year. Economic growth continues to be described as “solid,” and the labour market appears to be stabilizing, conditions that do not yet justify further easing. Importantly, Chair Jerome Powell reaffirmed the Fed’s commitment to maintaining its independence, a critical issue given how closely Canadian and U.S. financial markets are integrated.

For portfolios, this environment reinforces the case for balance rather than bold shifts. With interest rates likely to remain stable for an extended period, the focus remains on quality assets, appropriate diversification, and ensuring portfolios stay aligned with long-term objectives, not short-term headlines. Central banks are more transparent than in the past, meaning policy decisions are often priced into markets well before they occur.

Periods of uncertainty can create volatility, but they also reward discipline. Consistent investing, periodic rebalancing, and patience remain some of the most effective tools investors have.

In times like these, patience isn’t passive – it’s a strategy.