Bank of Canada lowers rates by 25 basis points, as expected

The market was 96% priced for a rate cut todayHeightened trade tensions and tariffs imposed by the United States will likely slow the pace of economic activity and increase inflationary pressures in Canada The economic outlook continues to be subject to more-than-usual uncertainty The US economy looks to have slowed in recent month economic growth in the first quarter of 2025 will likely slow as the intensifying trade conflict weighs on sentiment and activityRecent surveys suggest a sharp drop in consumer confidence and a slowdown in business spending as companies postpone or cancel investmentIn February, job growth stalledThere are warning signs that heightened trade tensions could disrupt the recovery in the jobs marketThe Bank’s preferred measures of core inflation remain above 2%Monetary policy cannot offset the impacts of a trade warThere is no strong guidance in the report but the comments are generally bearish on the economy and dovish overall, despite some unexpected strength at the end of 2024."Governing Council will be carefully assessing the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs. The Council will also be closely monitoring inflation expectations"Macklem will hold a press conference but the opening statement was pre-released:We’re now facing a new crisisOur surveys suggest that threats of new tariffs and uncertainty about the Canada-US trade relationship are already having a big impact on business and consumer intentionsCanadians intend to spend more cautiouslyBusinesses have lowered their sales outlooks Many businesses have scaled back their hiring and investment plansThe recent shift in consumer and business intentions is expected to translate into a marked slowing in domestic demand in the first quarter of this yearExports were likely pulled forward ahead of tariffs in Q1 but that will mean weakness aheadKeeping medium- and longer-term inflation expectations well anchored is imperative to ensure any rise in inflation is temporaryAgain, these are dovish comments but not unexpected. The big questions will be the extent of weakness in economic data starting in about April as all the tariffs front-running begins to unwind. Looking at home sales recently, there has been a big step down and I think that's telling regarding consumer spending overall. This article was written by Adam Button at www.forexlive.com.