The Bank of Canada’s Governing Council released a summary of its deliberations leading up to the monetary policy decision on September 17, 2025. The meetings began on September 12 and were attended by Governor Tiff Macklem, Senior Deputy Governor Carolyn Rogers, and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, and Michelle Alexopoulos. Deputy Governor Rhys Mendes was absent.

Council members started by reviewing recent global economic developments. They observed that while the global economy had shown resilience against increased US tariffs in the first half of the year, signs of slowing growth had become more apparent. In the United States, consumer spending moderated and the labour market softened, with slower monthly job growth and reduced hiring over the past year. "Softer consumer spending in the United States would translate into weaker demand for Canadian exports," council members noted.

US economic growth continued to be supported by business investment, particularly in artificial intelligence (AI) data centres. These investments are expected to improve productivity across the US economy but may not persist if confidence in AI returns weakens. Inflation in the US remained somewhat elevated as some tariff costs passed through to consumers.

In other regions, euro area growth slowed due to US tariffs affecting trade flows. China’s economy also decelerated in the second quarter, although exports performed better than expected despite a sharp decline in shipments to the US. Members highlighted uncertainty regarding ongoing weakness in China’s fixed-asset investment.

Financial conditions had loosened since July with higher equity prices and lower bond yields globally. The Canadian-US dollar exchange rate remained stable over this period.

Turning to Canada’s economy, council members noted that tariffs and trade uncertainty continued to weigh on activity; GDP contracted as anticipated in Q2. Exports fell sharply after being accelerated ahead of tariff implementation earlier in the year. Business investment also declined as firms adopted a cautious stance amid unpredictable US trade policy.

However, household spending exceeded expectations during Q2 with robust consumption growth per person and overall increases in housing resales and starts—though regional differences persisted. Members discussed how slower population growth and a softening labour market could dampen future household spending while weak business investment was expected to continue restraining economic growth through year-end.

Labour market indicators pointed to further softening: unemployment rose from 6.6% in February to 7.1% in August; employment dropped by more than 100,000 jobs over July and August, especially among sectors dependent on US trade; wage growth continued easing; businesses scaled back hiring plans due to persistent tariff-related uncertainty.

Statistics Canada reported headline CPI inflation at 1.9% for August—the same level as July—with core inflation measures (CPI-trim and CPI-median) remaining around 3%. Excluding indirect taxes brought inflation to 2.4%. The share of CPI components rising above 3% was at 39%, typically indicating underlying inflation near 2½%.

Council members agreed that "the latest inflation data indicated that upward momentum in core inflation seen earlier in the year had dissipated." Three- and six-month rates for preferred core measures showed declines compared with earlier periods. They also cited federal government actions: "the federal government’s recent decision to remove most retaliatory tariffs on imported goods from the United States will mean less upward pressure on the prices of these goods going forward."

When considering monetary policy options—maintaining or lowering the policy interest rate—members weighed several factors supporting both positions:

Arguments for holding at 2.75% included still-elevated core inflation around 3%, strong Q2 consumption possibly signaling renewed momentum, ongoing high trade-policy uncertainty, unclear effects from structural changes caused by new trading environments, uncertain cost pass-throughs from trade disruptions into consumer prices, and delayed effects from previous rate cuts still filtering through the economy.

Three primary developments argued for cutting rates: "First, the economy had weakened, with further softening in the labour market. Second, there was more evidence from recent monthly inflation readings that the upward pressures on core inflation may be easing. Third, the removal of most retaliatory tariffs by Canada also meant there was less upside risk to future inflation."

After weighing these considerations, Governing Council decided: "the balance of risks had shifted in favour of cutting the policy rate." The rate was reduced by 25 basis points—from 2.75% to 2.5%—to better balance current risks.

Members agreed they would maintain vigilance given ongoing uncertainties: "they would continue to emphasize that... they would be guided by their assessment of the risks to inflation" using a risk management approach focused on shorter horizons than usual.

Looking ahead toward October's Monetary Policy Report baseline projection for growth and inflation is expected following relative stability regarding US tariffs since July.