Canada reduced overnight rate 25bps, Fed Reserve holds for now.
Canada Signals the End of Quantitative Tightening
The Bank of Canada’s (BOC) first update in 2025 has set the tone, with another reduction in the Overnight Rate as well as announcing the end of Quantitative Tightening. The 25bps (0.25%) reduction was a move mostly anticipated by markets – recent inflation figures continue to be moderate, but business investment and labour markets are still sluggish.
In December, CPI figures came in at 1.8% compared to November’s 1.9% gain. Shelter prices grew 4.5% and remain a significant contributor to CPI figures, however inflation overall has been around the 2% target since August 2024. Outlook for Canada is modest; the BOC projects GDP gains of 1.8% in 2025 and 2026 as the economy continues to absorb excess supply and adjusts to the reduction in immigration levels.
The US Holds Steady
The US Federal Reserve also announced that is will hold the target range for the Federal Funds Rate at 4.25% to 4.5%. Inflation has not decelerated as quickly as hoped, as CPI figures in the US reached 2.9% in December. The index less food and energy rose to 3.2%; although this was slightly less than anticipated, inflation still lingers.
The decision to hold rates highlights the Fed’s desire to continue evaluating market developments prior to significant changes. Job growth and household consumption has been strong, and the Trump administration’s plans to impose tariffs continues to add uncertainty for future rates and inflation expectations. Market outlook, while strong for the US, could shift if tariffs come into effect.
Market Predictions: Shifting Risks
Although the moves by the BOC and the US Federal Reserve came as no surprise, markets are looking closely at the Trump Administration. President Trump has stated that 25% tariffs will be levied against Canada and Mexico on February 1, and he has also threatened tariffs against Taiwan Semiconductor Manufacturing Company (TSMC) which supplies advanced computer chips to companies like Apple, Nvidia, Qualcomm, and AMD. Many businesses are taking precautionary measures and investor confidence is rocky due to the uncertainty of tariffs and their impact.
Tariff impacts are complex and will adversely affect supply chains and the construction industry, as both countries rely on one another to trade various raw materials and manufactured goods such as softwood lumber, concrete, and steel. Price fluctuations could cause project delays and cost overruns, especially for projects that are in active construction.
BTY’s Cost Management, Lender Services, and Project Management teams are closely monitoring these developments as interest rates and commodity prices have a direct impact on project costs. Connect with a member of our team for more insight into how these changes could affect your construction projects.
