- September 17, 2025
- Posted by: Melanie Scott
- Category: Market News
The Bank of Canada delivered its first interest rate cut since March, lowering the benchmark rate by 25 basis points to 2.50% amid clear signs of economic weakness and a reduced risk of inflation surging. This move was widely anticipated by markets following three consecutive rate holds. The central bank cited a softening labor market, rising unemployment to 7.1% in August, and ongoing trade disruptions, particularly due to U.S. tariffs, that continue to weigh on economic growth. Inflation in Canada remains below the 2% target, and economists expect further cooling in the coming months supported by the recent removal of retaliatory tariffs on September 1. Many now predict another rate cut at the Bank of Canada’s October meeting.
Inflation data released on Tuesday showed a 1.9% year-over-year increase in August, slightly below expectations but up from 1.7% in July. The modest rise was influenced by smaller declines in gasoline prices and persistent food cost increases, reinforcing the Bank of Canada’s rationale for easing.
In the U.S., the Federal Reserve cut the federal funds rate by 25 basis points to 4.25%, marking its first cut of 2025, in line with market expectations. The decision followed signs of a cooling labor market, including a rise in the unemployment rate to 4.3% and a modest addition of 22,000 jobs in August. Inflation remains somewhat elevated but is projected to gradually decline. Fed Governor Stephen Miran dissented, advocating a larger 50 basis point cut. The Fed’s updated projections now anticipate two more quarter-point cuts this year, with rates declining to approximately 3.6% by the end of 2025 and continuing lower in 2026 and 2027. Meanwhile, robust core retail sales growth of 0.7% in August, aided by back-to-school shopping, demonstrates consumer spending resilience despite labor market softness and tariff impacts.
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