It’s a blockbuster week of central bank meetings with the Bank of Canada and FOMC meeting widely expected to deliver more rate cuts on Wednesday, while the Bank of Japan and ECB meetings will likely see rates remaining unchanged on Thursday. We check out the first two meetings below.
FOMC Meeting
The Federal Reserve takes the spotlight this week, with markets fully expecting a 25bps rate cut to bring the Fed Funds Rate down to 3.75–4.00%. The Fed has been weighing up a cooling labour market against still-sticky inflation around 3% which is above its 2% target. Policymakers remain divided between supporting jobs or keeping pressure on prices, while this all comes amid delayed government data which clouds the broader economic picture. There’s also speculation that the Fed could end its balance sheet runoff early due to recent money market strains, though opinions differ on whether it will be a full stop or a gradual wind-down.
Markets broadly expect more easing in 2026, but the pace remains uncertain as economic growth is projected to come in around 3% in Q4 amid low unemployment and record high stocks markets. Markets will be watching Chair Powell’s press conference closely for signals on how confident the Fed is that inflation is contained and how aggressive the rate-cut path could become into next year. Powell characterised the first cut in September after a nine-month pause as a ‘risk management’ move. Does the slowing jobs market warrant what markets currently expect – another 25bps reduction in December and a 50:5 bet on another cut in January.
Positioning in the dollar is now more balanced after the September policy easing triggered a sharp rebound in the greenback with the market heavily skewed to shorts. The balance of ricks this week seems to the upside as Powell may err more cautiously, especially due to the dearth of economic data.
Bank of Canada Meeting
The Bank of Canada also meets on Wednesday, and most economists expect a 25bps rate cut to 2.25%. The BoC recently abandoned forward guidance, shifting to shorter-term, data-driven decision-making. Economic data has been mixed with jobs growth strong, inflation elevated, and sentiment surveys highlighting cost pressures. But trade tensions with the US have re-emerged with today’s 10% tariff increase after President Trump’s recent decision to halt trade talks. This will no doubt be on the minds’ of policymakers and likely further weigh on business and consumer confidence. Indeed, markets have pushed to more fully price in a rate cut this week.
Wednesday’s meeting will also bring the latest Monetary Policy Report, including updates to inflation, growth, and neutral rate estimates. With policy already below the midpoint of the BoC’s neutral range, we will be watching Governor Macklem’s tone for any sign of whether this marks the end of the easing cycle, or if more cuts could follow as the bank balances persistent inflation with slowing trade and growth momentum.
The loonie will find buyers if the bank hints that the cut could be the last in the cycle, with the decision potentially accompanied by mildly hawkish language around the policy outlook. That could see the major fall, with a zone of support in the low 1.39 area. Resistance remains 1.4080, the mid-October multi-month high.