A Tale of Two Central Banks
In the final policy decisions of 2025, North America’s central bankers delivered a split verdict, signaling that the synchronized global easing cycle has hit a wall of complexity. On December 10, the Federal Reserve lowered its benchmark interest rate by a quarter-point to a range of 3.50% to 3.75%—its third consecutive cut—while the Bank of Canada held steady at 2.25%.
While the headline numbers suggest relief for borrowers, the underlying commentary tells a story of caution. Federal Reserve Chair Jerome Powell explicitly signaled that the U.S. central bank has likely “delivered enough rate cuts for now,” citing a need to observe how the economy evolves under the shadow of renewed trade protectionism and tariff-induced inflation risks.
The Data: Resilient Growth vs. Labor Concerns
The divergence in policy reflects the opposing economic realities facing the two nations as 2025 closes.
In the United States, the Fed’s decision was driven by a weakening labor market. Chair Powell noted potential “overcounts” in payroll numbers and concerns that job creation could turn negative. However, the decision was contentious; the meeting saw three dissents—the highest number since 2019—highlighting a deep internal divide between prioritizing full employment and fighting sticky inflation.
Conversely, Canada’s economy has shown surprising fortitude. The Bank of Canada’s decision to hold rates at 2.25% came on the heels of stronger-than-expected third-quarter GDP growth of 2.6%. Despite trade war anxieties, the Canadian economy has proven resilient, giving Governor Tiff Macklem the breathing room to pause and assess whether the current policy rate is sufficient to maintain low inflation without stifling growth.
The “Pause” Signal and Market Liquidity
The most critical takeaway for business owners and CFOs is not the rate cut itself, but the forward guidance. The Fed’s “dot plot” now pencils in just one rate cut for all of 2026. This “higher-for-longer” floor suggests that the era of cheap capital is not returning as quickly as equity markets hoped.
Traditional lenders, who rely on predictability, are likely to interpret this mixed signal—cutting rates while forecasting a pause—conservatively. With the threat of U.S. tariffs looming over global supply chains, bank credit committees are expected to tighten scrutiny on borrower cash flows, heavily weighing the risks of input cost inflation.
The Bond Capital Perspective
A rate cut does not immediately translate to easier bank loans. There is a lag effect, and when combined with the uncertainty of a fractured Fed and trade volatilities, traditional financing channels often become clogged with caution.
While commercial banks may pull back to reassess their risk models in light of the Fed’s signaled pause, Bond Capital focuses on asset value and operational fundamentals. We believe the current market—defined by regulatory opacity and macroeconomic divergence—requires lenders who can provide certainty of execution. For businesses seeking liquidity to navigate the transition into 2026, private credit offers the speed and flexibility that public policy currently cannot guarantee.
