Archive

BoC: Structural Pause at 2.25%

• The BoC held the policy rate at 2.25%, matching the consensus, and framed this as a pause near neutral that likely extends the horizon for stable rates.​
• Strong but trade‑driven Q3 growth and still‑soft domestic demand argue against near‑term hikes, keeping the bias toward a prolonged hold rather than renewed easing.​
• With CPI near 2% and core around 2.5%, the Bank sees inflation anchored, reducing pressure for further cuts and reinforcing a data‑dependent, higher‑for‑longer rate stance.​

Dual Mandate, Divided Fed: 2026 Crossroads

• The Fed cuts by 25bp for the third time, but hawkish dissent is deeper than voting suggests. Six members judged rates should still be 3.875%, and three members are pencilling in rate hikes next year.
• Despite revising 2026 PCE inflation forecasts down to 2.4% (from 2.6%), the Committee still projects only one 2026 cut, making a hawkish shift in the reaction function.
• 2026 rate projections split, with seven dots above the 3.375% forward median, four at the median, and eight below. Policy will depend on labour market and inflation data.

China Re-rooting Rather Than Dumping

• China’s rising export growth to Europe in November demonstrates base effects around a steady trend that predates US tariff increases. It isn’t about dumping.
• Avoidance measures remain rife, with transhipping through Vietnam not dented by the provisions in their US trade deal. Effective tariff rates aren’t rising belatedly.
• Profit-maximising companies still seem to be working around US measures, keeping the impact on inflation and growth smaller than many other economists feared.

By Philip Rush

Inflation Resurgence Tests RBA Patience

• The RBA held rates at 3.60% despite inflation surprising at 3.8% and signs of broader price pressures, reflecting uncertainty about data persistence and mixed demand signals.
• Recent wage and unit labour cost strength alongside tight labour market conditions have shifted the rate outlook from cuts to potential hikes within twelve months if pressures persist.
• The Board signals a willingness to tighten if inflation or demand accelerates, but emphasises data dependency (inflation and labour markets) through February 2026.