Bank of Canada cuts rates, again. Will the Fed follow?

On Wednesday, the Bank of Canada cut its key interest rate by a quarter point, lowering it to 4.25% – its third cut in a row. The cut was expected by economists and market watchers.

The Bank also signaled it is open to deeper cuts in the future, as much as 50 basis points. The decision comes as the country’s inflation rate fell to 2.5% in July.

Stateside, pressure is mounting on the Federal Reserve to cut rates, which currently sit between 5.25% and 5.5%. The July inflation rate was 2.9%. Last month, Fed Chair Jerome Powellhinted that a cut could be on the table in September. The next central bank meeting is Sept. 17-18.

The third consecutive rate cut in Canada and the growing probability that the Fed will follow suit suggests the rate of inflation is slowing and that the economies of both countries are tacking back toward a pre-pandemic normal.

The trend will be welcome news to incumbent Democrats in the US and Liberals in Canada, each of whom faces elections, with the presidential vote two months away and a federal election north of the border due by the fall of 2025.

On X, Prime Minister Justin Trudeaucalled the Canada rate cut “a strong signal that we’re going in the right direction.”