Bank of Canada cuts rates while U.S. Federal Reserve holds, as trade landscape rapidly evolves

Jenny Wang

March 24, 2025

Key takeaways

The Bank of Canada once again reduced its policy interest rate by 0.25% to 2.75%.
The target for the U.S. federal funds rate remains unchanged at 4.25-to-4.5%.
The economic outlook remains subject to more uncertainty due to the rapidly evolving trade policy landscape.

For the month of March, the Bank of Canada (BoC) announced its seventh consecutive interest rate cut, while the U.S. Federal Reserve (Fed) continued its more patient approach by holding rates steady once again. This brings the BoC’s policy interest rate to 2.75% (from 3%) and leaves the Fed’s target federal funds rate at 4.25-to-4.5%.

These decisions come against the backdrop of heightened trade tensions and tit-for-tat tariffs, which most believe will slow the pace of economic activity and increase inflationary pressures. In the meantime, equity prices have fallen off their highs and bond yields have eased on market expectations of weaker North American growth.

Q4 2024 Canadian growth stronger than expected, but will likely slow

Canadian economic growth in the fourth quarter of 2024 (2.6%) beat expectations (2.2%), which was already revised higher in the Bank’s January Monetary Policy Report. It’s clear that past rate cuts are having the desired impact of boosting economic activity. However, growth is likely to slow as trade concerns weigh on both economic activity and sentiment.

While inflation continues to hug the BoC’s 2% target, short-term expectations have risen given the concerns about the inflationary effects of tariffs. In justifying its 0.25% cut, the BoC stated that “Monetary policy cannot offset the impacts of a trade war. What it can and must do is ensure that higher prices do not lead to ongoing inflation.”

More of the same from the U.S. Federal Reserve

Directly lifted from its January statement, the Fed doubled down, saying, “Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.”

However, the Fed did shift its posture regarding its outlook, from believing the risks to achieving its employment and inflation goals being roughly in balance, to believing uncertainty around the economic outlook being increased. It appears U.S. growth is slowing, with short term growth expectations being revised downward in the Fed’s latest Summary of Economic Projections. Inflation expectations were also revised higher in the near-term. While it holds its ground for now, the Fed is still expected to cut interest rates by 0.5% this year.

We remain resolute in our long-term, strategic approach

We continue to emphasize underlying strategies that give our portfolios access to high-quality companies with strong balance sheets, competitive advantages, and proven margin resilience during times of economic stress.

Diversification remains the best defense. Our strategic allocation across asset classes, sectors, and geographies helps cushion portfolios against area-specific downturns while positioning to capture growth across various market segments.

While much remains unknown about the tariffs' effects and our future relationship with our southern neighbors, we continuously monitor the evolving economic and market landscape to determine if strategic and tactical adjustments are needed to adjust the positioning of your portfolio for long-term growth.

The BoC’s and the Fed’s next interest rate announcements are scheduled for April 16^th and May 7^th, respectively.

Jenny Wang

Jenny Wang, CFA, MA Economics, is a Portfolio Manager with the Multi-Asset Management Team. She is a member of the total portfolio management sub-team and her primary focus is on fixed income investments.

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