Bank of Canada Cuts Rates as Labor Market Softens, Says TD

12:20 PM EDT, 09/17/2025 (MT Newswires) -- The Bank of Canada (BoC) cut its policy rate by 25bps to 2.50% on Wednesday, in line with market expectations, said TD.

The statement noted that "underlying inflation is running around 2.5%" and that the removal of retaliatory tariffs on imports from the United States "will mean less upward pressure on the prices of these goods going forward." One notable inclusion was the consumer price index excluding taxes, once again receiving a call out (2.5% year-on-year).

The press conference opening statement noted that the labor market has softened, underlying inflation pressures have cooled, and the removal of retaliatory tariffs means there is "less upside risk to future inflation."

Looking forward, emphasis will be placed on examining how export growth evolves and the knock-on effects it will have on "business investment, employment and household spending."

The phrase that stood out is that "Governing Council is proceeding carefully, with particular attention to the risks and uncertainties," stated TD. This will help rein in market pricing from becoming overly aggressive on rate cut expectations. But, at the same time, the bank has long maintained that this wouldn't be a one-and-done scenario for the BoC.

Economic slack will persist, and the risks appear disproportionately on the downside, with little reason to believe there will be a quick resolution to trade issues -- particularly with the U.S. triggering the review of USMCA on Tuesday, well in advance of the timeline, added TD.

Officials have space to deliver another cut with core inflation metrics softening and the labor market showing visible strains. The bank looks for the BoC to deliver another 25 basis points of easing at its next meeting in October.

Beyond that, TD will need to assess the state of the economy and overall environment. The ball goes into the government's court with its Budget on Nov. 4. The BoC will factor in spending and other initiatives for the decision in December.

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