BoC December Minutes highlight cautious optimism amid risks

The Bank of Canada’s (BoC) December meeting minutes show policymakers becoming more confident in the economy’s resilience while remaining cautious amid unusually high uncertainty. Governing Council (GC) noted that the global economy has held up better than expected despite rising trade tensions, particularly US protectionism. The US economy continued to benefit from strong consumer spending and investment in artificial intelligence, though tariff pass-through posed an upside risk to inflation. Europe’s growth surprised to the upside, China remained subdued, and global financial conditions, oil prices, and the Canadian Dollar (CAD) were broadly unchanged from October.

At home, revised data showed the Canadian economy entered 2025 on firmer footing than previously believed, with stronger investment and productivity boosting productive capacity. Canadian Gross Domestic Product (GDP) growth rebounded to 2.6% in the third quarter after a sharp second-quarter contraction, largely due to falling imports rather than stronger domestic demand. The labour market showed improvement, with recent job gains pushing unemployment down to 6.5%, but the quality of hiring remained mixed, with much of the growth in part-time work and subdued hiring intentions. Inflation eased to 2.2% in October, while core inflation remained around 2.5%. Policymakers expect some near-term volatility in inflation readings but continue to see underlying price pressures easing gradually toward the 2% target.

In terms of policy, the Governing Council highlighted trade policy, specifically the upcoming CUSMA review period in July, as a major risk to the outlook, alongside uncertainty around how the economy adapts to structural shifts in global trade. While revised data suggest slightly less economic slack than previously thought, members agreed the economy is still operating with excess supply and inflation remains contained. Having already cut rates by 100 basis points earlier in the year, the Bank decided to hold the policy rate steady at 2.25%, near the lower end of its neutral range. Officials agreed the current stance is appropriate but emphasized that, given elevated uncertainty, it is difficult to predict the timing or direction of the next rate move and that they stand ready to respond if the outlook changes materially.