By Paul Vieira
OTTAWA--Senior Bank of Canada policymakers were reluctant to predict whether the next change in interest rates would be up or down, citing volatile data and elevated trade-policy uncertainty, according to minutes published Tuesday.
Central bank officials kept their main interest rate unchanged at 2.25% on Dec. 10, saying it was at the right level to keep inflation near 2% and offer support to growth. The minutes, which summarize deliberations ahead of the policy announcement, indicate officials were somewhat leery of data showing improvements in economic activity, and cognizant of the elevated risk posed by trade-policy uncertainty on business investment and hiring.
After agreeing to hold the policy rate steady, senior officials "discussed whether it was more likely that their next move would be to raise or lower the policy interest rate," according to the minutes. Given a high level of uncertainty, "it was difficult to predict when and in which direction the next change in the policy rate would be," the minutes said.
Most economists predict that Canada's central bank will be on a prolonged pause in regards to rate policy, after a series of cuts starting in June of last year that lowered the policy rate by a collective 2.75 percentage points. In late November, fixed-income traders started to place bets of a policy-rate increase in the second half of 2026, based on encouraging economic data.
In announcing the Dec. 10 rate decision. Gov. Tiff Macklem attempted to temper expectations by arguing the economy wasn't close to reaching full potential.
Just ahead of the policy decision, data from Statistics Canada indicated that gross domestic product grew 2.6% annualized in the third quarter, or well above the central bank's forecast for a smaller 0.5% gain. Revisions to GDP data from previous years also indicated the economy was on a stronger footing before the trade conflict with the U.S.
Employment data indicated three months of solid job growth, leading to a sharp drop in the unemployment rate to a still-elevated level of 6.5%.
The Bank of Canada's seven-member governing council "acknowledged that uncertainty and volatility in the data made it more difficult to get a clear signal about the strength of the economy," according to minutes. As for labor data specifically, Bank of Canada officials noted "a broader set of indicators showed a mixed picture," with job vacancies low and the bulk of new hiring focused on the part-time variety.
Policymakers "would remain cautious in interpreting incoming data given recent volatility and would be prepared to react if their outlook changed materially," the minutes said.
Economists have noted that positive developments as reported in Statistics Canada's closely-watched labor-force survey aren't showing up in the less-timely payroll data. And on Tuesday, GDP data for October indicated that economic activity declined from the prior month, putting output on pace to post a small decline for the fourth quarter.
The minutes also indicate that senior central bank officials viewed the upcoming talks tied to renewing the U.S.-Mexico-Canada trade treaty, or USMCA, as a stiff headwind for the economy, with business leaders likely reluctant to accelerate investment and hiring plans without assurances that the trade deal would remain intact.
According to the minutes, senior officials believed the uncertainty "leading up to and during negotiations would likely weigh on business investment . . . [Officials] shared that business leaders they had met across the country saw the future of [USMCA] as a significant strategic risk to their businesses."
U.S. Trade Representative Jamieson Greer expressed support for the U.S.-Mexico-Canada pact in closed-door congressional meetings last week, but he is also seeking several concessions in regard to the trade deal on issues such as alcohol sales, dairy trade and regulations governing online streaming from Prime Minister Mark Carney. Trump administration officials, Greer among them, had previously mused about terminating the three-country trade pact, instead seeking separate deals with Canada and Mexico.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
12-23-25 1403ET
