Bank of Canada Governor Macklem: Data since last rate decision has been mixed

• We discussed both 25 and 50 bps
• There are some mixed signals in the economic data
• We cut by 50 bps for 2 reasons: 1) We no longer need policy that’s clearly in restrictive territory. 2) All the data tilts towards a softer economic outlook for GDP growth compared to October estimates
• Cites lower immigration targets as a reason to suspect lower growth
• The threat of tariffs on Canada is a major source of uncertainty but we don’t know if they will be implemented
• We can’t run policy on something that might happen
• We are in excess supply, the economy has been soft
• We haven’t seen widespread job losses like you would typically see in a recession
• Most of the ‘weakness’ in the Canadian dollar is appreciation in the US dollar
• We will have to factor in Canadian dollar weakness into forecasts
• We will keep an eye on how immigration and rate cuts compete in the housing market
• We are not expecting a recession
• Asked about ongoing cuts, cites 175 bps in cuts “that’s a lot”
• Cuts will be working their way through the economy
• Going forward, I expect we will be considering further cuts to rates
• If economy evolves as anticipated, we will be taking a ‘more gradual approach’
• It will be ‘more gradual’ than the 50 bps we cut at the last two meetings
• We will be considering further reductions but we will take them one meeting at a time
• There is clearly some slack in the labor market

There isn’t much of a hint on January rates here and the market is pricing in a 56% chance of a cut but only 61 bps in all of 2025 as the BOC lands between 2.50-2.75% at year end. I suspect we will end up lower than that but — like the BOC — we will have to wait to see the data. So far, Canadian consumer spending has held up better than expected. That said, the spring housing market is a big risk.

USD/CAD has mostly been unmoved during the press conference but USD/CAD is down 40 pips since the BOC decision to 1.4140.

This article was written by Adam Button at www.forexlive.com.