RBC Financial Markets Monthly

Higher Fed terminal and weaker loonie shouldn’t make the BoC queasy

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The January 2025 edition of Financial Markets Monthly from RBC Economics includes a forward-looking analysis of Canadian, U.S. and international financial market trends.

Highlights

“Like the Eagles sing in Take It Easy, the sound of the wheels of an underperforming economy will prevent the BoC from cutting interest rates.”

RBC Financial Markets Monthly

  • With the run of exceptional U.S. data continuing, we no longer expect any further rate cuts from the Fed in 2025
  • Trade uncertainties are still lurking but domestic economic factors are expected to increasingly drive inflation trends in 2025, leading central banks to leave interest rates at varying terminals this year relative to their long-run neutral targets
  • Persistent weakening in the Canadian economy expected, driving the Bank of Canada to cut the overnight rate to a “stimulative” 2%, while the Bank of England and European Central Bank lower rates to ~neutral
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Sources

RBC Economics, Financial Markets Monthly, January 2025