This is an account of the deliberations of the Bank of Canada’s Governing Council leading to the monetary policy decision on October 29, 2025.
This summary reflects discussions and deliberations by members of Governing Council in stage three of the Bank’s monetary policy decision-making process. This stage takes place after members have received all staff briefings and recommendations.
Governing Council’s policy decision-making meetings began on October 21, 2025. The Governor presided over these meetings. Members in attendance were Governor Tiff Macklem, Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, Rhys Mendes and Michelle Alexopoulos.
International economy
Governing Council members began their deliberations by discussing global economic developments since the July Monetary Policy Report. The impact of US protectionism on major economies around the world had become clearer. Trade flows had begun to shift, and ongoing trade uncertainty had weighed on investment in most advanced economies. Even so, global growth was resilient but was expected to slow over the next two years.
Economic growth in the United States remained strong even with higher tariffs on imports. Members attributed much of this strength to the boom in artificial intelligence (AI) investment. US consumer spending was robust overall, contributing to this strength. Consumption was likely supported by segments of the population who have benefited from buoyant equity markets. Employment growth had slowed, and tariffs were beginning to push up US consumer prices. After growth in US gross domestic product (GDP) rebounded in the second quarter of 2025, members expected it to moderate in the second half of the year and in 2026.
Growth in the euro area was expected to moderate in the second half of 2025 because of weaker exports and slower domestic demand growth. Fiscal spending on defence and infrastructure could provide some support going forward. In China, growth was robust, boosted by strong government support for households and an increase in exports to other (non-US) countries, replacing lost exports to the United States. However, a sharp decline in investment was expected to contribute to slightly slower growth over the next two years. Members noted that slower-than-expected GDP growth in China could translate into weaker demand and lower prices for raw materials exported by Canada.
Global financial conditions had eased further since the July Report, supporting spending in many advanced economies. Oil prices were around the same level as in July, despite some volatility linked to geopolitical events.
Canadian economy and inflation outlook
Members then turned their attention to recent economic developments and the outlook for growth and inflation in Canada. Since the July Report—where alternative scenarios for tariffs were presented—the impact of US trade policy on the Canadian economy had become clearer. Governing Council members agreed that it was appropriate to return to the usual approach of presenting a baseline forecast in the October Report but recognized that US trade policy was still unpredictable.
The impact of US trade actions on Canada’s economy had become more visible in recent months. Targeted sectors, including automobiles, steel, aluminum and lumber, have been severely hit, but lower demand from the United States for Canadian goods and services was affecting the rest of the economy as well. Hiring across the economy was weak, as was business investment.
Consumer spending was resilient, and housing starts and resales had both increased since the spring, albeit with regional disparities. Members noted that growth of consumption per person was strong in the second quarter. However, they expected slower per person consumption growth, coupled with slower population growth, would mean modest overall consumption growth in the second half of the year. Also, while accommodative financial conditions would support household spending going forward, people who are worried about their jobs would likely be cautious in their spending.
Members agreed that the labour market was soft. Employment gains in September followed two months of large numbers of job losses, and the unemployment rate had risen to 7.1% from 6.6% in January and February. Members noted that employment growth was weak across the economy, but the decline in population growth meant that fewer new jobs were needed to keep the employment rate steady. Job losses since January have been concentrated in trade-related sectors, and firms in other sectors seemed to be retaining their workforces for now. Nevertheless, members expressed concern that weakness in the labour market could persist and broaden. Responses to the Business Outlook Survey showed that most businesses do not expect to increase staffing levels. And discussions with companies during regional outreach visits indicated that if demand from the United States were to weaken further, that could lead to more job losses.
Members expected GDP growth to recover from the sharp contraction in the second quarter but remain weak in the second half of 2025. Growth was expected to be underpinned by consumption and supported by housing and government spending. The projection in the October Report shows growth strengthening in 2026 as exports and business investment begin to recover; growth reaches 1.6% in 2027. Excess supply is absorbed only slowly over the projection horizon.
Consumer price index (CPI) inflation ticked up to 2.4% in September, higher than the Bank had expected. Most of the increase was attributed to gasoline prices. Excluding taxes, inflation was 2.9%. Governing Council examined a broad range of indicators of underlying inflation. CPI-trim and CPI-median, the Bank’s preferred measures of core inflation, remained stuck around 3% in September. Members noted that the three- and six-month measures of core inflation indicated that upward momentum from earlier in the year had dissipated, although these and other measures of core inflation remained elevated. Looking at the full range of inflation indicators, Governing Council concluded that underlying inflation was still around 2½%.
Members acknowledged that year-over-year inflation would be choppy in the coming months due to base-year effects from the GST/HST holiday on some items at the end of 2024 through early 2025 and the elimination of the consumer carbon tax in April 2025. Members would be looking through this choppiness and watching indicators of underlying inflation for signals about the trend of total inflation. Members expected shelter price inflation and inflation in goods prices excluding energy to moderate. Excess supply in the economy was anticipated to put downward pressure on inflation. However, this would be offset by increased cost pressures linked to tariffs and the reconfiguration of trade. Given these offsetting forces, Governing Council expected CPI inflation to remain close to 2% over the projection horizon.
Considerations for monetary policy
Governing Council members discussed what the recent economic developments implied for the stance of monetary policy. They covered two broad questions:
- To what extent should Governing Council adopt a more forward-looking approach to monetary policy given continued elevated uncertainty?
- What is the appropriate role for monetary policy during this period of structural change brought about by the dramatic shift in US trade policy?
In considering the first question, members agreed that while uncertainty about US trade policy remained high, after six months of experience with higher tariffs, some things were now more evident:
- US trade policy had shifted to protectionism and was unlikely to reverse. This meant global trading relationships would have to adjust to higher US tariffs. Indeed, global trade flows have started to shift away from the United States.
- US trade actions were having severe effects on targeted sectors in Canada, including automobiles, steel, aluminum and lumber. Exports to the United States had declined, and exports to markets outside the United States had increased.
- The labour market had weakened because of trade actions and the uncertainty surrounding trade policy.
- The removal of most counter-tariffs by Canada had reduced upward pressure on import prices, but businesses continued to report new costs from the reconfiguration of trade.
These developments gave Governing Council members confidence that they could now be more forward-looking. By moving to a base-case projection in the October Report, they could assess incoming data relative to their forecast and balance the risks to inflation over the medium term. At the same time, members agreed that a wider-than-normal range of risks and uncertainties remained. Of these, members cited the timing and outcomes of ongoing trade discussions with the United States, the upcoming review of the Canada-United States-Mexico Agreement, and how structural changes to the economy brought about by the reconfiguration of trade would unfold.
Governing Council continued its discussions from previous meetings about the role of monetary policy during a period of structural change. Members shared views on how much of the current weakness was due to the trade shock, to spillovers from affected sectors to the broader economy, or to general uncertainty. They agreed that all of these were contributing factors. Even though growth was expected to gradually recover, the economy would be on a permanently lower path. The level of GDP was expected to be about 1½% lower at the end of 2026 than had been forecast in January 2025. They were comfortable with the assessment in the October Report that about half the drop stemmed from weaker demand and half from structural adjustments precipitated by the trade conflict. However, members acknowledged that this assessment was subject to considerable uncertainty.
Members acknowledged that the structural adjustments to the economy could take a long time. Since these adjustments would also add costs for businesses as they adapt their supply chains, customer bases and business models, monetary policy would be limited in the amount of support it could provide to boost demand while maintaining low inflation. Monetary policy cannot target specific sectors or open new markets. However, members agreed that monetary policy could play a role in mitigating the spillovers from hard-hit sectors to the rest of the economy. It could also provide some stimulus to help smooth economic adjustment as long as inflation is well controlled.
Policy decision
Having agreed that monetary policy can provide some support to the economy through this period of structural change, members discussed the appropriate stance for monetary policy to do so in light of their outlook for growth and inflation.
Governing Council agreed that a further reduction of 25 basis points would be warranted in October or a subsequent meeting given that the economy is anticipated to be weak and inflation is expected to remain close to the 2% target. This would bring the policy interest rate to the lower end of the Bank’s estimated range of the neutral rate, putting the policy rate on the stimulative side of the range.
While members agreed that a cut to the policy interest rate would be needed, they had a range of views about the timing of the cut.
Waiting to cut the policy rate at a future meeting would provide Governing Council with more information on the economy, including the extent of weakness in the labour market, input cost pressures and the recent persistence of underlying inflation. It would also provide more information on US trade policy developments and federal fiscal policy. However, with continued excess supply, labour market weakness, tepid growth expected in the second half of the year and inflation projected to stay close to the target, the arguments for cutting the policy rate in October were considered more salient. Governing Council therefore agreed at this meeting to cut the policy interest rate by a further 25 basis points to 2.25%.
Governing Council members also agreed that monetary policy was likely close to the limits of what it could do to support the economy in the current circumstances. They agreed that to be as clear as possible, they should communicate that, based on their outlook, they believe the current policy rate is at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. Members wanted to underline that this assessment was contingent on inflation and economic activity evolving broadly in line with the October projection.
Governing Council also recognized that uncertainty remained elevated and the risks around the outlook were higher than normal. Members would be assessing incoming data relative to their outlook. If new information led them to conclude the outlook had changed materially, they were prepared to adjust the policy interest rate.
Governing Council’s priority was to ensure that Canadians remain confident in price stability throughout this period of global upheaval.