Diverging Paths: Bank of Canada Holds as Fed Cuts Rates

 

Tiff Macklem, Governor of the Bank of Canada, holds a press conference at the Bank of Canada in Ottawa on Wednesday, Oct. 29, 2025.

In a striking display of policy divergence, the Bank of Canada (BoC) is widely expected to hold its benchmark interest rate steady at 2.25% during its final meeting of 2025, while the U.S. Federal Reserve (Fed) is poised to deliver another quarter-point cut, lowering its target range to 3.75%–4.00%.

The BoC’s decision reflects a Canadian economy that has shown resilience in recent months. Strong job gains, steady wage growth, and a 2.6% annualized GDP increase in Q3 have bolstered confidence that inflation can be guided toward target without further easing. Financial markets have placed odds of nearly 93% in favor of a rate hold, signaling broad consensus among economists.

By contrast, the Fed faces a more complex backdrop. Despite lingering inflation concerns, the U.S. economy has experienced a slowing labor market and uneven growth, prompting policymakers to lean toward additional cuts. Analysts expect this to be the third consecutive reduction in 2025, though divisions within the Fed remain sharp, with some officials warning against easing too aggressively.

This divergence underscores the different economic trajectories of the two countries. Canada’s stronger-than-expected labor and productivity data have given the BoC room to pause, while the U.S. central bank is under pressure to support growth amid signs of weakness. For investors and businesses, the split could mean currency fluctuations, trade implications, and shifting capital flows as monetary conditions diverge across the border.

Looking ahead, economists suggest the BoC may remain on the sidelines well into 2026, while the Fed could continue trimming rates if economic softness persists. The contrasting moves highlight how national economic conditions drive central bank decisions, even in closely linked economies.