The Great Decoupling: North American Policy Diverges
On December 10, 2025, the synchronized dance of North American monetary policy officially ended. In a pivotal day for global markets, the Federal Reserve voted to lower its benchmark interest rate by 25 basis points to a range of 3.50%–3.75%, marking its third consecutive cut. Simultaneously, the Bank of Canada (BoC) defied expectations of easing by holding its overnight rate steady at 2.25%.
This divergence highlights a critical shift in the economic narratives north and south of the border. While the U.S. actively stimulates to forestall labor market weakness, Canada is pausing to digest surprising economic resilience in the face of looming trade friction.
The Federal Reserve: A Safety Cut with a Hawk’s Warning
Federal Reserve Chair Jerome Powell framed the decision as a necessary measure to protect the labor market, which has shown signs of softening. Despite the cut, the Fed’s forward guidance remains notably cautious. Policymakers have signaled a significant slowdown in the easing cycle, projecting just one solitary rate cut for the entirety of 2026.
Powell emphasized that the central bank is "well positioned to wait," suggesting that the era of rapid easing is over. The Fed is now balancing the dual mandate on a razor’s edge: supporting employment without reigniting inflation, which remains sticky due to the anticipated inflationary impact of new tariff policies.
Bank of Canada: Resilience Amidst Uncertainty
Conversely, Governor Tiff Macklem and the Bank of Canada chose stability over stimulus. The decision to hold the policy rate at 2.25% was underpinned by stronger-than-expected economic data. Canada’s Q3 GDP surprised to the upside with 2.6% growth, and the unemployment rate tightened to 6.5% in November.
However, the BoC’s tone was far from celebratory. Governor Macklem explicitly cited "structural transition" and high uncertainty regarding the Canada-U.S.-Mexico Agreement (CUSMA) review and U.S. tariffs. While the domestic economy is proving hardy, the Bank is keeping its powder dry, wary that external trade shocks could swiftly alter the inflation landscape.
The Signal for Borrowers: Certainty is the New Premium
For business owners and CFOs, the headline rates tell only half the story. The explicit mention of "uncertainty" by both central banks is a leading indicator for commercial banking behavior. In environments where trade policy and inflation trajectories are unclear, traditional Schedule I banks typically contract their credit boxes, prioritizing liquidity over loan growth.
Bond Capital maintains a clear thesis for this environment: A rate cut in the U.S. or a hold in Canada does not immediately translate to easier access to capital. As traditional lenders retreat to analyze the fallout of trade negotiations and tariff impacts, the private credit market becomes the vital engine for businesses requiring execution certainty.
Implication: Navigating the Gap
We are entering a period where the cost of capital may stabilize, but the availability of capital will bifurcate. Companies with pristine balance sheets will find bank support, while those in transition or seeking aggressive growth may find traditional doors closing due to macro-level risk aversion. In this "higher-for-longer" volatility regime, private debt offers the strategic flexibility that regulated dominance cannot providing.
