Bank of Canada Holds Interest Rates Steady As U.S. Fed Cuts Rates Again

It was a tale of two central banks on Wednesday as the Bank of Canada elected to hold interest rates steady and the U.S. Federal Reserve cut its benchmark interest rate for the third time this year.

Citing the ongoing trade war between the U.S. and China, as well as mounting Canadian consumer debt, the Bank of Canada announced that it is holding its benchmark interest rate at 1.75%, bucking the trend of central banks south of the border and abroad that are actively loosening monetary policy.

Indeed, the U.S. Federal Reserve announced on the same day that it is lowering its target range for its Federal Funds Rate 25 basis points to 1.50–1.75%. This is the third time that the Fed has lowered the Fed Funds target range in 2019, following previous easing in July and September. The last full cycle of rate increases occurred between June 2004 and June 2006 as rates steadily rose from 1.00% to 5.25%.

In Ottawa, Bank of Canada Governor Stephen Poloz said he factored the U.S.-China trade war into his decision to leave Canadian interest rates where they currently are. However, the central bank governor said that despite strong headwinds for the global economy, Canada’s economy remains on track.

"We’re not an island. We are feeling these international things, but … we’re getting a rebound in housing, good solid job growth, and consumption spending at the same time. So, there’s a bit of an offset right there," said Poloz, adding "In aggregate, things are still okay."

In Washington, D.C., the U.S. Federal Reserve cited a global manufacturing slowdown and uncertainty stemming from President Donald Trump’s trade war as posing ongoing risks to the domestic economy. The Fed’s vote to cut interest rates for a third time this year was not unanimous though, with two officials voting against.

The Fed also hinted Wednesday that it will now take a break from easing monetary policy. The American central bank dropped a key line from its post-meeting statement in which it pledged to "act as appropriate to sustain the expansion," language it had been using to signal a willingness to lower interest rates.

"The committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate," the Fed’s statement read, explaining that while the Fed expects to hit its inflation and employment goals, "uncertainties about this outlook remain."

The U.S. central bank has now lowered its benchmark interest rate a total of 0.75 percentage points in 2019.