Add Central Bank Minutes: Inflation risks have weakened, policy focus shifts to addressing economic weakness

According to the latest minutes released by the Bank of Canada on Wednesday, decision-makers believe that the inflation risks facing the Canadian economy have somewhat diminished, but have not been completely eliminated. The minutes indicate that although the upside risks have decreased, uncertainties remain regarding the additional costs brought about by trade frictions, including when, where, and to what extent these costs will manifest, which still cannot be determined. This discussion took place before the central bank announced a rate cut to 2.5% on September 17, marking the first rate cut since March of this year. Bank Governor Tiff Macklem stated that inflationary pressures have significantly eased, and the current policy focus has shifted to addressing economic weakness. The minutes show that the central bank's governing council considered maintaining the interest rate at 2.75%, but ultimately chose to cut rates due to multiple factors, including a weakening labor market, easing core inflationary pressures, and Prime Minister Mark Carney's decision to eliminate retaliatory tariffs on billions of dollars of U.S. goods. Data shows that Canada's economy contracted by 1.6% in the second quarter, with exports plummeting by 27%; the labor market is also under pressure, with the unemployment rate rising to 7.1% in August, and a total loss of 100,000 jobs in July and August. Members of the central bank's governing council also pointed out that U.S. tariffs are causing structural changes in demand and supply, making the assessment of idle economic capacity more complex. If uncertainty surrounding U.S. trade policy persists, it could further weaken the labor market and dampen business investment. Meanwhile, with the review of the United States-Mexico-Canada Agreement (USMCA) approaching next year, external uncertainties are expected to continue. The meeting also mentioned that the slowdown in Canada's population growth will become another factor dragging down future economic growth. Although Canada has eliminated retaliatory tariffs, the central bank remains concerned that the restructuring of the global trade landscape will lead to decreased efficiency and increased costs, while U.S. tariffs on imported goods may also transmit through the supply chain to Canada, resulting in higher price pressures. Central bank officials emphasized that future policy adjustments will be "cautiously advanced," adopting a more short-term and risk management-oriented observational framework while balancing the risks of economic downturn and inflationary pressures, and being ready to respond to new information. Notably, the minutes state that given the relative stability of U.S. tariffs recently, the central bank is confident in restarting its benchmark growth and inflation forecasts in the next monetary policy report on October 29. So far this year, the Bank of Canada has only provided scenario analyses in its policy reports without giving clear benchmark forecasts, mainly due to the high uncertainty caused by U.S.-Canada trade frictions