According to the Zhitong Finance APP, most economists predict that the Bank of Canada may keep its benchmark policy rate unchanged on Wednesday local time, rather than continuing the rate-cutting process that has been in place since last year. This is mainly because officials at the central bank may need sufficient time to assess the negative impact of the new round of global trade war initiated by the Trump administration on the Canadian economy.
For traders in the interest rate futures market and U.S. Treasury trading market, the monetary policy decision to be announced by the Bank of Canada on Wednesday, especially its outlook on Canadian interest rates and economic prospects under tariff shocks, is crucial for setting expectations for Federal Reserve rate cuts. Current market traders are betting that the Federal Reserve will cut rates three times in 2025, with the first cut possibly occurring in June, expecting a total reduction of 75 basis points this year. If the Bank of Canada pauses its rate cuts and indicates that it will wait for a detailed assessment of the tariff impacts before making decisions, market expectations for Federal Reserve rate cuts may cool. Conversely, if the Bank of Canada unexpectedly announces a continuation of the rate-cutting process, expectations for Federal Reserve rate cuts are likely to continue to rise.
Goldman Sachs, a major Wall Street bank, recently raised its forecast for the U.S. core PCE inflation index at the end of 2025 by 0.5 percentage points to 3.5%, and emphasized that the likelihood of it rising to 4% is very high, noting that even by 2026, it will be difficult for core PCE to return to the Federal Reserve's target of 2%. In February of this year, the core PCE index showed a year-on-year increase of 2.8%.
Additionally, Goldman Sachs' latest forecast indicates that the U.S. economic growth rate in 2025 will be only 0.5%, with a 45% chance of falling into recession in the next 12 months. In terms of rate cut expectations, Goldman Sachs' baseline scenario predicts that the Federal Reserve will cut rates by 25 basis points in June, July, and September to address the risk of a more severe decline in the labor market; if the U.S. economy falls into recession and the unemployment rate rises significantly, Goldman Sachs expects the Federal Reserve may cut rates by more than 200 basis points over the next year, stating that historically, during U.S. economic recessions, rate cuts typically range from 400 to 500 basis points.
Economists and traders generally expect that the policymakers at the Bank of Canada, led by Governor Tiff Macklem, will keep the policy rate unchanged at 2.75%, marking the first pause in rate changes during eight monetary policy meetings. However, economists believe this decision remains a delicate balance of judgment—among 30 economists surveyed, 17 expect the Bank of Canada to maintain the rate, while the others anticipate continued rate cuts.
As the tariff policies announced by Trump are bound to impact Canada's already weak economic growth, the Bank of Canada is likely to pause rate cuts in the short term, waiting for clearer economic data and global trade conditions before making decisions. This policy expectation also reflects market uncertainty regarding Canada's economic and inflation outlook, especially given the impact of Trump's trade policies on the Canadian economy, which has long been the largest trading partner of the United States.
Earlier this month, Trump exempted Canada and Mexico from &#34;reciprocal tariffs,&#34; but he still imposes strict tariffs of over 20% on various Canadian goods (including important Canadian exports to the U.S. such as automobiles, steel, and aluminum). The newly appointed Canadian Prime Minister Mark Carney has taken a strong countermeasure against the tariff policies initiated by the Trump administration, imposing import taxes of up to 25% on certain U.S. goods, although he announced some exemptions on Tuesday
This wave of extremely unstable and rapidly evolving tariff policy shocks has hit the optimism of Canadian businesses and consumers. It has prompted economists to downgrade their growth expectations for the Canadian economy and raise inflation expectations for Canada—significantly heating up the economic outlook known as &#34;stagflation.&#34; &#34;Stagflation&#34; is arguably the economic predicament that central banks least want to see, as it severely restricts the space for central banks like the Federal Reserve to cut interest rates to boost the economy.
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This situation has also made the decision-making process of the Bank of Canada more complex. In a speech on March 20, before the market experienced severe fluctuations triggered by Trump's &#34;Liberation Day&#34; tariff announcement, Macklem stated that the Bank of Canada &#34;will conduct forward-looking monetary policy operations less frequently than normal until the situation becomes clearer,&#34; and warned that when the situation becomes clearer, the central bank may act more swiftly.
On the same day, Macklem told reporters that policymakers might ultimately not provide the more detailed economic outlook and inflation forecasts typically released with the central bank's quarterly monetary policy report. Instead, the central bank may choose to provide a series of actual policy outcomes, similar to what was done in April 2020 at the onset of the COVID-19 pandemic.
&#34;Due to widespread uncertainty, coupled with the 'Liberation Day' results being stronger than actual expectations, we expect the Bank of Canada will not cut rates on Wednesday,&#34; said Ian Pollick, head of global fixed income, currency, and commodity strategy at Canadian Imperial Bank of Commerce (CIBC), in an interview.
While the possibility of a further 25 basis point cut still exists, it may face opposition from some members of the monetary policy committee. Summaries of discussions from the central bank's monetary policy meetings indicate that policymakers discussed pausing rate cuts in March, with some members suggesting waiting for more economic data before making further adjustments.
Since June of last year, the Bank of Canada has significantly eased monetary policy due to ongoing economic weakness, achieving good positive progress in inflation control compared to other American countries like the United States. Meanwhile, core inflation indicators are nearing the upper limit of the central bank's target range.
Statistics Canada reported on Tuesday that inflation unexpectedly cooled in March. Although this data initially pushed overnight swap market expectations for a pause in rate cuts on Wednesday, the market now believes the probability of maintaining the benchmark policy rate unchanged is about two-thirds.
There are many reasons that make the Bank of Canada's decision-making more cautious, including the fact that U.S. trade policies towards its North American neighbors and globally are changing almost daily, with each new announcement leading to severe fluctuations in bond and stock markets.
Officials at the Bank of Canada have recently warned that they cannot allow the price shocks that may arise from the trade war to turn into sustained inflation increases, thereby limiting their ability to help industries affected by the disputes through interest rate cuts. The Bank of Canada's own surveys have begun to show that inflation expectations in Canada are rising significantly due to tariffs
&#34;In times of financial crisis or pandemic, timing is crucial. However, during a trade war, developments tend to be slower,&#34; wrote Royce Mendes, head of interest rates and macro strategy at Desjardins Securities, in a report. &#34;Officials at the Bank of Canada have enough time and do not need to rush into decisions they may regret later.&#34;
Meanwhile, the United States is Canada's largest trading partner, and if the global tariff war continues, weaker U.S. growth will ultimately have a severe impact on the Canadian economy.
&#34;However, Canada has enough 'medicine' to cope with this challenge. Fiscal stimulus at both the federal and provincial levels, along with the Bank of Canada's ongoing accommodative policies, will help alleviate the symptoms of economic downturn and facilitate a quicker recovery,&#34; wrote economists Claire Fan and Nathan Janzen from the Royal Bank of Canada (RBC) in a report.
The economists at the institution expect a continuation of a 25 basis point rate cut on Wednesday, as the Bank of Canada has already indicated its willingness to support Canadian economic growth in its March decision, anticipating further weakness in the Canadian economy due to tariff pressures.
One factor favoring the Bank of Canada in pausing rate cuts is that Canada is still in an election period.
&#34;I generally do not advocate considering political factors in decision-making,&#34; said Eric Lascelles, chief economist at RBC Global Asset Management, in an interview. &#34;But for central bank officials, if you are uncertain about whether to cut rates amid the immense pressure from the Trump administration's tariff policies, perhaps you do not want to make a controversial decision just weeks before an election.&#34;

The Bank of Canada may keep the benchmark interest rate unchanged in the upcoming monetary policy decision to assess the impact of the global trade war triggered by the Trump administration on the economy. Market expectations for a rate cut by the Federal Reserve will be affected; if the Bank of Canada pauses rate cuts, it may lead to a cooling of rate cut expectations; conversely, if it continues to cut rates, expectations will heat up. Goldman Sachs predicts that the Federal Reserve will cut rates in the coming months and expects the U.S. economic growth rate to be only 0.5% in 2025

- Most economists predict that the Bank of Canada will likely keep its benchmark policy rate unchanged on Wednesday, pausing its rate cuts initiated last year to assess the impact of the new global trade tensions.  
- The decision is crucial for traders in the interest rate futures and U.S. Treasury markets, as it will influence expectations for U.S. Federal Reserve rate cuts, with Goldman Sachs forecasting three cuts in 2025.  
- The uncertainty surrounding trade policies and their effects on the Canadian economy has led to a cautious approach from the Bank of Canada, which may delay further rate adjustments until clearer economic data emerges.

A decision related to the Federal Reserve's interest rate cut expectations is coming! Will the Bank of Canada hold steady or continue to cut rates?