The Bank of Canada left the benchmark interest rate at 2.25 per cent, just like governor Tiff Macklem telegraphed it would. The rate is at the low end of a range that policymakers theorize is neither stimulative nor contractionary. Macklem said Wednesday that inflation is “contained,” but the central bank remains concerned that costs “associated with the reconfiguration of trade” could reignite price pressures. 

Locked: Macklem was unusually explicit after he cut the benchmark rate a quarter point in October, stating that 2.25 per cent was at “about the right level” given that policymakers must simultaneously contend with inflation threats and weaker economic growth. He reinforced that position Wednesday, emphasizing that it will take a lot to knock the central bank off its chosen path. “We will be assessing incoming data relative to our outlook,” Macklem said in a statement on the latest policy deliberations. 

“If a new shock or an accumulation of evidence materially changes the outlook, we are prepared to respond.”

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Loaded: The key word in Macklem’s description of what it would take to prompt a reconsideration of policy is “materially.” Much of the data this fall has been positive. The unemployment rate has fallen to 6.5 per cent from around seven per cent, and the economic growth surged to an annual rate of 2.6 per cent in the third quarter from a decrease in the second quarter, faster than the Bank of Canada had forecast. In isolation, you could argue that the central bank should be thinking about an interest rate increase. 

Macklem acknowledged the economy “is proving resilient overall.” Yet the steel, aluminum, automobile and lumber industries are in a lot of trouble because of U.S. tariffs. The labour market is “showing signs of improving,” but “we’re seeing muted hiring intentions,” the governor said. The gross domestic product numbers are being pushed around by trade uncertainty, and the central bank has not changed its mind that “GDP will expand at a moderate pace in 2026 and inflation will remain close to target.” 

In other words, these aren’t material changes.

Listen: The guidance that Macklem offered in October was relatively explicit. It should be taken seriously because central banks generally prefer ambiguity. Nevertheless, doubts persist. Interest rates have been drifting higher, as some investors bet the Bank of Canada could be among a set of central banks that increase interest rates next year. Others think Macklem has set rates too high. Royce Mendes, head of macro strategy at Desjardins (and brother of Bank of Canada deputy governor Rhys Mendes), said in a commentary last week that the central bank looked like it was “playing to lose,” putting too much weight on inflation risks, while underestimating the possibility that higher rates could impede business investment at a moment when the country needs lots of it.

Extra words about what it would take to prompt the central bank to raise or lower interest rates might neutralize some of the lingering doubts about Macklem’s conviction to the course he set in October. It was a conditional commitment: if the facts change, the Bank of Canada will change. But the bar is high.

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