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Here’s what we learned about the economy, inflation and more from the central bank’s decision and press conference Wednesday. 

Recession unlikely 

The bank has been cagey with economic outlooks this year because of the greater-than-usual uncertainty on trade, instead putting forth multiple scenarios to illustrate where things might be headed.

But Macklem said Wednesday it doesn’t look like a recession is in the cards this year, even after the economy contracted in the second quarter.

“We are expecting growth somewhere around one per cent in the second half of the year,” Macklem said. 

“It’s not going to feel good. It is growth, but it’s slow growth because ... the Canadian economy is adjusting to a different relationship with its biggest trading partner.”

Trade uncertainty remains 

Macklem said near-term uncertainty may have “come down a little” as U.S. tariffs showed signs of stability in recent months and businesses appear to have adapted.

But the focus has now shifted to the Canada-United States-Mexico Agreement, or CUSMA, which is up for review next year. 

“Tariffs are weakening the Canadian economy,” Macklem said, which has “acutely” impacted industries directly linked to trade, such as transportation.

Macklem said businesses are also facing a host of new costs related to trade disruptions as they switch to new suppliers and develop new markets.

“That all entails cost, and when you step back, the reality is tariffs are increasing trade friction with our biggest trading partner,” he said. 

“That has efficiency costs.”

Macklem explained that monetary policy alone can’t undo the effects of tariffs, particularly ones targeted to specific industries such as metals and the auto sector.

Inflation trending in the right direction

Concerns over inflation from earlier this year have started to dissipate, Macklem said.

That’s true even after Statistics Canada reported Tuesday that the annual inflation rate in August rose to 1.9 per cent. 

The central bank looks at a wide range of inflation measures since price stability is its core mandate. A closer look at the numbers suggest inflation is easing even after the August increase.

“If you look under the hood though, what you can see is that earlier in the year we saw some upward momentum in those core measures. If you look at the more recent monthly readings on the core measures, that momentum has come off,” Macklem said.

He said the federal government’s decision to drop most retaliatory tariffs against the United States at the start of this month will also take some fuel out of inflation.

Jobless rate weighs

Macklem noted the labour market is continuing to slow, with not only job losses in sectors directly impacted by trade disruptions, but also a hiring slowdown in other industries as businesses pull back on spending.

However, he said unemployment levels — which came in at 7.1 per cent in August — are also changing as population growth slows in Canada.

“Population growth adds to both demand and supply in the economy,” Macklem said. “Lower population growth means there’s less new consumers in the economy, so you’re going to see less growth in consumer spending.

“It also means that there’s less new workers in the economy, so there’s less new people looking for jobs in the economy,” Macklem added.

Canada’s population size remained unchanged in the first quarter of 2025 after a drastic shift in federal policies to lower immigration levels last year, according to Statistics Canada.

Government policy

Macklem faced several questions about how the federal budget, slated for Nov. 4, will play into the central bank’s future interest rate decisions.

He said the Bank of Canada is waiting until there’s a complete budget where it can see how those individual plans fit together, rather than adjusting monetary policy now. He also noted that there will be “a lot of new information” between now and the budget’s delivery.

“Once we have the budget, we will be assessing the implications of the government’s plans on the economic outlook, what that means for growth, for inflation and ultimately for what we need to do with interest rates,” he said.

Macklem reiterated that he believes fiscal policy is better suited to handle the sector-specific impacts of U.S. tariffs, while the Bank of Canada’s interest rate can smooth the broader hit from the ensuing shifts in the economy.

Senior deputy governor Carolyn Rogers suggested the central bank would assess the November budget at its final rate decision of the year in December.

— With files from Craig Lord in Ottawa

This report by The Canadian Press was first published Sept. 17, 2025.