Bank of Canada, Federal Reserve Set The Stage for 2026, Says BMO

06:27 AM EST, 12/11/2025 (MT Newswires) -- Two central banks, two different policy announcements on Wednesday, said Bank of Montreal (BMO).

Both -- Bank of Canada and the Federal Reserve -- are potentially setting up a stable 2026, stated BMO.

The BoC left rates unchanged at 2.25%, and said as clearly as possible that it's comfortable on hold at these levels unless something drastically changes. Markets have actually pivoted to price in some tightening later next year, but the bank sees the BoC on hold through 2026.

The Federal Reserve cut rates by 25bps as widely expected, to 3.625% (midpoint). The statement was relatively balanced, saying that "the extent and timing of additional adjustments" will depend on the data flow from here, added BMO.

Federal Reserve Chair Jerome Powell argued rates are now in the neutral range. Indeed, with core inflation still stuck around 3% -- or somewhat higher -- real policy rates are only modestly above zero.

Markets are still pricing in another 50bps of Fed easing in 2026, pointed out the bank. The "fascinating" aspect to the coming year will be how a more dovish FOMC interacts with potentially firm growth, stubborn inflation and a ripping equity market. Dissents on policy, as seen on Wednesday, may be the new norm.

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