The Bank of Canada is facing an increasingly uncertain 2026 despite experts agreeing on its current policy path.
Etienne Bordeleau-Labrecque, vice-president and portfolio manager at Ninepoint Partners, says the bank is in a good position at the start of the year. “They’ve cut to the low end of what they consider the neutral rate, and a lot of the headwinds that the Canadian economy is facing are not really well addressed by monetary policy.”
On Wednesday, the bank held its policy rate steady at 2.25 per cent, which was expected by Bordeleau-Labrecque and most economists. The decision arrived with the looming review of the Canada-U.S.-Mexico Agreement.
Read: Fixed income facing uneasy macroeconomic outlook in early 2026: expert
In a report by the Canadian Press, Bank of Canada governor Tiff Macklem said the outcome of the CUSMA is also an “important risk to our projection.” He stressed uncertainty remains unusually high.
The Canadian economy is facing a risk of further deterioration if the country loses ground in the CUSMA negotiations leading to a second trade shock, says Bordeleau-Labrecque. For now, he expects the bank to maintain a steady approach, unless there’s increased risk from the CUSMA review.
“In that situation, I think the bank would feel comfortable enough that inflation is not going to make its way back and that it should provide more accommodations to the economy.”
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Macklem also addressed the recent tension between President Donald Trump and U.S. Federal Reserve chair Jerome Powell. Trump has repeatedly criticized Powell for not moving fast enough on cutting rates and, earlier this month, the conflict escalated when the Justice Department announced it was investigating the Fed. In a public statement, Powell said the investigation was part of Trump’s effort to take control of U.S. interest rate policy.
“The U.S. Federal Reserve is the biggest, most important central bank in the world, and we all need it to work well,” Macklem said. “A loss of independence of the Fed would affect us all. And for Canada, our financial markets are particularly integrated with the United States, so it would particularly affect us.”