While the Fed lowered its policy rate by 25 basis points in December to a range of 4.25%-4.50%, members of the Federal Open Market Committee (FOMC) described the decision as “finely balanced.” They weighed the need to maintain economic strength against the goal of continuing progress on inflation.
Some participants argued that there was value in keeping the target range for the federal funds rate unchanged, noting that the risk of persistently high inflation had grown in recent months.
The minutes noted that “almost all members judged” inflation risks to have increased, citing sticky price data, strong economic growth, and potential fallout from shifts in trade and immigration policies. Fed staff also flagged the risk that tariffs could slow growth and keep inflation stubbornly high, adding to the uncertainty.
Fed rate cuts still on the table for 2025
While the Federal Reserve maintains a restrictive policy stance, the door to further rate cuts in 2025 remains open.
According to the latest minutes, “if the data came in about as expected, with inflation continuing to move down sustainably to 2% and the economy remaining near maximum employment, it would be appropriate to continue to move gradually toward a more neutral stance of policy over time.”
Currently, a median of FOMC members expects just two additional quarter-point cuts in 2025.
According to BMO senior economist Sal Guatieri, U.S. borrowers will have to wait until the Fed’s March meeting before seeing its next cut.
“The minutes confirm that the Fed will take a more cautious approach to policy easing, cementing expectations of a rate pause in January,” he wrote. “We still look for the next cut in March, though much depends on the next few inflation releases and how hard Trump swings the tariff hammer.”
What this means for Canada
The Fed’s more cautious approach could have a ripple effect on the Bank of Canada’s rate strategy.
With the current rate spread between U.S. and Canadian policy rates now at 125 bps, the BoC will be keeping a close eye on U.S. developments. The Fed’s stance could give the BoC more breathing room to slow its own pace of easing.
The Bank of Canada’s next rate decisions will be on January 29 and March 12, 2025. Bond markets are currently pricing in a 68% chance of a 25-bps rate cut at its January meeting.
Forecasts from the country’s Big 6 banks are split on how much the BoC is likely to continue easing rates in the first quarter of 2025. BMO, Scotiabank, and TD anticipate just one quarter-point rate cut in either January or March, while RBC, CIBC, and National Bank expect a more significant 50 basis points of easing.
Current policy rate & bond yield forecasts from the Big 6 banks
| Current Policy Rate: | Policy Rate: Q1 ’25 | Policy Rate: Q4 ’25 | Policy Rate: Q4 ’26 | 5-Year Bond Yield: Q4 ‘25 | 5-Year Bond Yield: Q4 ‘26 | |
|---|---|---|---|---|---|---|
 | 3.25% | 3.00% | 2.50% | 2.75% | ||
 | 3.25% | 2.75% | 2.25% | 2.25% | NA | NA |
 | 3.25% | 2.75% | 2.25% | 2.75% | 2.50% | 2.85% |
 | 3.25% | 2.75% | 2.00% | 2.45% | 2.45% | |
 | 3.25% | 3.00% | 3.00% | 3.00% | 3.50% | 3.50% |
 | 3.25% | 3.00% | 2.25% | 2.25% | 2.75% | 2.75% |
bank of canada rate forecast big bank forecasts federal open market committee federal reserve fomc FOMC minutes interest rate forecasts minutes rate outlook sal guatieri
Last modified: January 9, 2025
