Bank of Canada Pauses Rate Cuts at 2.75% Amid U.S. Trade War Led by Trump, Citing Inflation Concerns

The Bank of Canada has decided to maintain its key interest rate at 2.75%, marking the first pause after seven straight cuts. This decision comes amidst heightened uncertainty due to the ongoing trade war with the United States, led by President Donald Trump. Governor Tiff Macklem highlighted that the unpredictability of U.S. trade policy has increased economic uncertainty, reduced growth prospects, and raised inflation expectations in Canada. The central bank is taking a cautious approach, opting to hold rates steady to better assess the impact of U.S. tariffs on the Canadian economy. The removal of the consumer carbon tax in April and lower oil prices are expected to pull inflation down by about 0.7 percentage points for one year, with the current inflation rate at 2.3% following the end of the GST suspension. The Bank of Canada outlined two economic scenarios in its Monetary Policy Report to reflect the uncertainty surrounding U.S. trade policies. In the first scenario, most tariffs are negotiated away, leading to a temporary stall in GDP growth but a return to moderate expansion. The second scenario envisions a prolonged trade war, resulting in a significant recession for Canada in 2025 and a rise in inflation above 3% by mid-2026.