Senior officials at the Bank of Canada have identified the looming review of the critical Canada-United-States-Mexico Agreement (CUSMA) as a major threat to the nation's economic forecast. This concern was highlighted in the summary of the central bank's governing council deliberations, released on Tuesday, December 23, 2025.
Uncertainty Clouds Monetary Policy Path
The discussions occurred ahead of the Bank's final interest rate decision of the year on December 10, where it opted to hold its benchmark rate steady at 2.25 per cent. Governor Tiff Macklem stated at the time that the rate was at "about the right level" to manage inflation and support the economy amidst trade tensions. However, the newly released minutes reveal deep uncertainty about the next steps.
Policymakers explicitly noted that the "uncertainty leading up to and during negotiations would likely weigh on business investment." They grappled with two potential outcomes: a worst-case scenario involving the pact's dissolution and higher tariffs, or a resolution that brings stability to North American trade. This ambiguity has made forecasting the direction of future rate changes exceptionally difficult.
Resilient Economy Amidst Trade Headwinds
Despite the significant risk posed by the CUSMA review, the Bank of Canada acknowledged that the domestic economy has demonstrated notable resilience. The economy expanded by 2.6 per cent in the third quarter, far surpassing the central bank's earlier modest forecast of 0.5 per cent growth.
Furthermore, Statistics Canada revised its GDP figures upward for 2022, 2023, and 2024. The labour market also showed strength in the fall, with the unemployment rate dropping to 6.5 per cent in November. However, officials cautioned that much of the job growth was in part-time work, with hiring intentions remaining subdued.
Inflation and Future Preparedness
Looking ahead, policymakers anticipate a slight uptick in inflation early in the new year, partly due to the base effect from a temporary GST/HST holiday a year prior. Their core expectation, however, is for inflation to remain close to the Bank's 2 per cent target through 2026, with core measures gradually easing.
The governing council concluded that while the economy is showing signs of weathering trade upheaval, the level of uncertainty remains high. They pledged to interpret incoming data cautiously and stand ready to respond should a major shock materially alter the outlook for growth and inflation. Many economists now expect the Bank of Canada to maintain its current interest rate throughout 2026 as it navigates these turbulent trade waters.
