As widely expected, the

Bank of Canada

trimmed the policy rate by 25 basis points on Wednesday to 2.5 per cent, the first easing since March 12, but there was an array of not-so-subtle shifts in the tone of the statement that are key.

For one, the prior commentary on how the global economy had been “resilient” was marked down to “slowing.” And for the United States, the central bank also revised its assessment downward, especially with respect to the labour market, which is now seen as having “slowed” compared to being “solid” just six weeks ago.

Policymakers also paid lip service to the contraction in Canada’s real

gross domestic product

(GDP), the recent job losses and the softening in hiring plans. Along with a more challenging demographic profile, this will “weigh on household spending” in the months ahead, they said in a statement.

What kept the Bank of Canada on hold these past six months were concerns over the tariff file and the possible impact on

inflation

. There were a few months of above-expected

consumer price index

(CPI) and core CPI prints, but this was resolved over the July-August period.

The fact that the trade and tariff file has moved to the back burner following Ottawa’s recent decision to remove most retaliatory tariffs on imported goods from the U.S. “will mean less upward pressure on the prices of these goods going forward,” they said.

Ergo, the Bank of Canada’s confidence level that inflation is back on a downward path has substantially increased in recent weeks. At the same time, the markdown on the overall assessment of the economic backdrop and outlook was underscored by the use of the terms “weak,” “soft” and “slow” no less than 10 times, double the number from the last meeting six weeks ago.

The bottom line is that uncertainty is no longer mentioned as being “high,” and this was acting as a constraint on the Bank of Canada through the spring and summer. As

U.S. Federal Reserve chair Jay Powell

put it last December, elevated uncertainty is akin to walking in a dark room with furniture, which means that the central bank stands still so as not to get tripped up. Well, someone turned on a lamp for

Tiff Macklem

today.

There are also likely more cuts to come; not just a cut, but cuts, to two per cent or lower before the rate cycle is complete. Futures are priced 85 per cent of the way for one more move by year-end. The economy is going to need all the help it can get. Notice how “resilience” in the statement six weeks ago just morphed into “weaker.”

That the Bank of Canada said “wage growth has continued to ease” is critical because there is no sustained price inflation without wage inflation. Not to mention that in the last five central bank easing cycles over the past quarter-century, not once did it stop north of two per cent. Good news for the front end of the Government of Canada bond market, but less so for the listless loonie.

Speaking of Powell, the Fed also cut rates as expected and by 25 basis points to a range of four per cent to 4.25 per cent. The only dissent was — surprise, surprise — from Stephen Miran, who voted for a 50-basis-point cut on Donald Trump’s behalf (and apparently wants 125 basis points of cuts at the next two meetings).

While the Fed maintained that “inflation has moved up and remains somewhat elevated” in its statement, it also added that “downside risks to employment have risen,” and that was brand spanking new.

The Fed is adjusting policy, even with inflation above target, based on the other part of the mandate — employment conditions — at a time when the funds rate is still quite a bit above the so-called neutral rate (around three).

The dot plots undershot the market expectation of how far the Fed will go next year (by just over one cut). The dot plots are now at 3.625 per cent for the end of this year, which is a cut for both the October and December meetings. This was in line with market views for this year; perhaps more aggressive for the balance of 2025. For 2026, the median dot plot is now 3.375 per cent versus 3.625 per cent in the last set of projections in June.

As for 2027, there will be one more cut to 3.125 per cent, according to the dot plots, down from 3.375 per cent. If that is how far the Fed ends up going, the current four per cent level on the 10-year Treasury note yield makes sense.

  • Stock market is running on fumes
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But we see an ultimate low of two per cent in nominal terms and zero per cent in real terms, which almost always represents the trough in a classic easing cycle. Three per cent is our target for the 10-year T-note yield. After all, most markets in Europe are already there.

David Rosenberg is founder and president of independent research firm Rosenberg Research & Associates Inc. To receive more of David Rosenberg’s insights and analysis, you can sign up for a complimentary, one-month trial on the Rosenberg Research website.

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