Yesterday, the central banks of Canada and the US announced they were holding their policy interest rates steady. The Bank of Canada (BoC) and US Federal Reserve Board (Fed) both acknowledged that inflationary risks have risen but will not make significant changes before seeing how the conflict in the Middle East impacts inflation and economic activity now and over the medium- to-long term. Here’s more from a busy day for North American central banks.

• The BoC held its benchmark overnight interest rate steady at 2.25%. This marked the fourth consecutive rate hold by the BoC, believing its current level provides the necessary economic support.
• Canada’s central bank sees inflation picking up to 3% before returning to 2% in 2027. The BoC projects growth of 1.2% this year and 1.7% next year. However, the BoC did acknowledge the risks to its outlook, including trade tensions with the US and the conflict in the Middle East.
• The BoC stopped short of providing projections for the future path of interest rates as it monitors developments in the Mideast and trade negotiations with the US.
• The Fed held the target range of its federal funds rate steady at 3.50%–3.75%.
• Fed officials were divided on the decision, suggesting the Mideast conflict is causing uncertainty for the US economy and prices. The Fed noted it will closely monitor incoming data and is willing to shift policy if the economy does not evolve as expected.

The BoC and Fed are hesitant to make any changes to their policy interest rates with economic conditions shifting in response to geopolitical tensions. However, by all accounts, they are willing to make changes depending on the path of actual inflation compared to their outlook. Interest rates could potentially go either way from here. Across the Atlantic, the European Central Bank and Bank of England announce their interest rate decisions today.

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.