The Bank of Canada’s Governing Council has released a summary of its deliberations leading up to the monetary policy decision on September 17, 2025. The discussions took place after council members received staff briefings and recommendations, with Governor Tiff Macklem presiding over the meetings. Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, and Michelle Alexopoulos attended; Deputy Governor Rhys Mendes was absent.
Council members began by reviewing global economic developments since July. They noted that while the global economy had shown resilience to increased US tariffs earlier in the year, there were now signs of slowing growth. In the United States, consumer spending had moderated and the labor market softened, with recent payroll data showing slower job growth and historical revisions indicating less hiring over the past year. Members observed that this trend could reduce demand for Canadian exports.
US business investment remained strong due to investments in artificial intelligence (AI) data centers, which are expected to support productivity gains across the US economy. However, council members cautioned that if sentiment about AI investment changes, these gains may not continue. Inflation in the US remained elevated with some evidence of tariffs affecting consumer prices.
In other regions, euro area growth slowed due to US tariffs impacting trade. China’s economy also decelerated in the second quarter despite better-than-expected export performance outside shipments to the US. The council noted a significant decline in fixed-asset investment in China and uncertainty about whether this weakness would persist.
Financial conditions had eased since July: equity prices rose, credit spreads stayed steady, bond yields fell, and while the US dollar depreciated against most currencies globally, it remained stable relative to the Canadian dollar. Oil prices were close to previous projections.
Turning to Canada’s domestic situation since July, council members highlighted ongoing challenges from tariffs and trade uncertainty that contributed to an expected contraction in GDP during Q2 2025. Exports dropped by 27% after firms accelerated shipments ahead of new tariffs earlier in the year; business investment also declined as companies adopted a cautious approach amid unpredictable US trade policy.
However, household spending exceeded expectations in Q2: consumption grew robustly both overall and per capita; housing resales and starts increased from low levels but showed regional variation. The council discussed whether slower population growth and a softer labor market might limit future household spending growth.
Labour market indicators pointed toward further softening: unemployment rose from 6.6% in February to 7.1% by August; more than 100,000 jobs were lost between July and August—mainly in sectors reliant on US trade—while employment gains elsewhere also slowed as businesses reduced hiring plans. Wage growth continued easing amid concerns that ongoing tariff uncertainty could worsen labour market conditions.
Statistics Canada reported August headline inflation at 1.9%, unchanged from July; excluding indirect taxes inflation was 2.4%. Core inflation measures (CPI-trim and CPI-median) stayed around 3%. A broad review indicated underlying inflation near 2½%. Council members agreed upward momentum seen earlier this year had dissipated—three- and six-month core inflation rates had fallen below prior highs—and noted that removal of most retaliatory Canadian tariffs on imported US goods should reduce price pressures going forward.
Discussing risks facing Canada’s economy and inflation outlooks, council members cited persistent trade uncertainty—including renegotiation of CUSMA—as likely obstacles for business investment recovery while noting elevated global uncertainty due to geopolitical use of tariffs by the United States.
The sustainability of recent household spending strength was questioned given weaker labor markets and low consumer confidence—even though per capita consumption returned to pre-pandemic levels after an extended contraction ending in 2024; previous interest rate cuts may have supported this rebound.
Members acknowledged difficulty assessing economic slack due to structural changes stemming from shifting global trading patterns—a challenge for monetary policy typically designed for cyclical rather than structural shocks—and anticipated lower potential growth as population increases slow further.
They recognized upcoming federal/provincial infrastructure investments supporting sectors affected by tariffs would be larger than previously projected once budgets are finalized; these will be factored into future outlooks accordingly.
On inflation risks specifically: “Members agreed that the upside risks to inflation had diminished,” citing waning momentum in underlying measures plus removal of counter-tariffs on US goods reducing pass-through effects on consumer prices along with falling input costs for labor, shipping, materials—all pointing toward lower future pressures.
However they stressed uncertainties remain: “Trade disruptions implied new costs… when and where they might materialize… what they could mean for inflation all remained uncertain.” Adjustments required under new trading arrangements could add inefficiencies/costs while some imported goods’ price pressures may spill over via supply chains routed through or originating from countries affected by ongoing or future US tariff actions.
In considering their policy response given these factors—including two options: holding rates at 2.75% or cutting them by 25 basis points—the council weighed mixed signals such as still-elevated core inflation versus clear evidence of weakening economic activity/labor markets plus fading upward pressure on core prices following removal of most retaliatory tariffs:
“In reviewing all these factors,” according to their statement,“Governing Council judged that the balance of risks had shifted in favour of cutting the policy rate.” As a result,“Members therefore decided to reduce the policy rate to 2.5%” aiming for better risk balance going forward while emphasizing continued vigilance:“They also agreed they would continue…to take a risk management approach…ready to respond.”
With relative stability regarding recent US tariff actions compared with July projections,“members expected they would be able”to present baseline forecasts for October’s Monetary Policy Report.