The BoC is expected to cut interest rates by 25 bps bringing their policy rate to 2.25% which is the lower bound of their estimated neutral range (2-25%-3.25%). The market still sees decent chances for the BoC to end the cycle at 2.00% sometime in 2026. The BoC will also release the quarterly monetary policy report (MPR) which should return to the normal forecasting framework.
At the press conference, Governor Macklem is not expected to give any clear forward guidance and keep the market guessing between another 25 bps cut or no further easing. A clear signal of another cut would be taken as dovish, while no further easing as hawkish. But it wouldn't be a game changer given the market pricing.
The expectations for a cut got solidified mainly by some dovish BoC Governor Macklem's comments and by the renewed tensions between US and Canada on the tariffs front. We all know that eventually the US and Canada will get along, but for now this risk should give the BoC a reason to err on the dovish side.
In terms of economic data, the most recent employment and inflation reports both surprised to the upside. Governor Macklem played down the recent jobs report but we haven't got any comments from BoC officials after the hot CPI report. The BoC is likely to cut just on the balance of risks. In their view, bringing the policy rate to the lower bound of the neutral range should be the right move.
If they keep rates steady, then it would be taken as a hawkish surprise and we should see the Canadian dollar strenghten across the board. But again, surprising the markets with a hold in the current context might not sound good for them.
Finally — the Fed meeting explained for normal people, not economists.
