Central banks cut rates amid mixed earnings results
The Bank of Canada (BoC) delivered another quarter-percentage-point cut, bringing its interest rate down to 2.25%, the lowest since mid-2022. The message was calm on the surface, yet the subtext was blunt: the U.S. tariff shock is a structural drag, and monetary policy can only cushion, not cure. Growth expectations were notably downgraded, with Canadian gross domestic product now expected to end 2026 1.5% lower than the BoC anticipated in January. The chance of another rate cut in December slid from 40% to 10%. Core inflation is sticky at almost 3%, but this looks to be due to cost pressure rather than an overheated economy. Investment is weak, exports are pressured and consumption is softening. At 2.25%, the interest rate is already at the low end of neutral, which means the BoC is flirting with support without saying so out loud. If growth weakens further, the BoC’s “about right” stance will not hold. The bank may be noncommittal for now, but another rate cut will likely be back on the table if the data keeps supporting one.
The U.S. Federal Reserve (the Fed) also delivered a quarter-percentage cut, bringing its interest rate range down to 3.75–4% and confirmed that quantitative tightening (the policy of shrinking its balance sheet to slow down inflation) will end on December 1. That follows weeks of tightening in funding markets and shrinking reserves. The Fed’s vote split on the rate cut was 10–2 in favour. One member of the Fed Board, Stephen Miran wanted a half-percentage-point cut, arguing for faster risk management. Another Fed Board member, Jeffrey Schmid wanted no change, which was a surprise, given his support for a rate cut in September. The Fed’s statement framed growth as “expanding at a moderate pace” and acknowledged slower job gains and a small increase in inflation. Markets took it in their stride.
The big earnings report results this week included Alphabet (Google) beating expectations and getting credit for cloud momentum. Meta’s (Facebook) stock went down after it announced that it needed to increase spending substantially and that its outlook was cautious. Microsoft’s results were broadly fine, with growth from Azure (its cloud computing platform) holding up, but expectations were lofty and the stock sagged. On the horizon, Sam Altman, OpenAI’s CEO, said that an initial public offering of the company’s stock is the most likely endgame, with a suggested filing date of late 2026, with a 2027 debut at a headline valuation that starts with a “1” and ends with a “trillion.”
Looking ahead, macro data is still on hold because of the U.S. federal shutdown, but earnings season continues; the market needs strong growth to justify the gains already made so far.
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