The Bank of Canada has maintained its vital interest rate at 2.25 percent for the second consecutive session, although its path may shift as the nation faces a precarious free trade discussion with the U.S. and Mexico.

The central bank's economic outlook has not changed "substantially" since its October estimate, governor Tiff Macklem informed the press during a news briefing in Ottawa on Wednesday.

"Nevertheless, the uncertainty surrounding our forecast is intensified, and the spectrum of potential outcomes is broader than usual," he stated during his prepared speech. "U.S. trade policy is still uncertain, and geopolitical tensions are heightened."

The forthcoming assessment of the Canada-U.S.-Mexico Agreement on trade, or CUSMA, is a major source of economic unpredictability and an "essential risk" to Canada's economic forecast, Macklem highlighted.

"Clearly, the era of open, rules-based trade with the United States has ended," he remarked. "We must adapt and move forward."

Bank of Canada’s leader claims 'it's evident' the era of open, rules-based trade with the U.S. is finished.

He also warned that Canada's initiatives to diversify trade will not fully mitigate the "structural" harm inflicted on the economy during the U.S. trade conflict.

When asked by the Wall Street Journal if the result of the CUSMA negotiation will influence future interest rate choices, Macklem replied "it represents a significant risk to our forecast."

The central bank's present economic predictions are predicated on a situation where U.S. tariffs against Canada remain effective and CUSMA-related exemptions preserve some free trade with the U.S. "That may shift with the review," he added.

Continuous threats to the autonomy of the U.S. Federal Reserve are also adding to "increased" economic uncertainty, according to Macklem, both in Canada and abroad.

The governor recently endorsed a letter supporting U.S. Fed chair Jerome Powell, who is facing scrutiny from the country's Department of Justice after resisting pressures from U.S. President Donald Trump to lower interest rates.

The U.S. Fed is the "largest, most crucial central bank globally, and we all rely on its effective operation. A loss of independence for the Fed would impact us all," particularly Canada, Macklem asserted.

Joseph Brusuelas, chief economist at RSM, indicated in a note to clients that he does not foresee changes to rates for the remainder of the year. However, the upcoming CUSMA review could "turn contentious."

In that regard, "any policy alteration from the central bank would likely favor rate cuts if economic growth diminishes, labor slack increases, or if there is a more pronounced deterioration in economic relations with the U.S.," he stated.

With Canadian population growth decelerating and the economy adjusting to U.S. protectionism, the central bank anticipates modest GDP growth and that inflation will remain near its two percent goal.

Following a robust third quarter, economic expansion is likely to have stagnated in the fourth quarter due to U.S. tariffs adversely affecting Canadian exports.

However, domestic expenditure "seems to be gaining momentum," and the central bank expects that business investment — which has waned amid the uncertainty — will recover.

Employment has also increased in recent months, though Canada's unemployment rate remains high at 6.8 percent, and few businesses plan to recruit in the near future, according to the Bank of Canada's latest Business Outlook Survey.

The central bank is forecasting annual average GDP growth of 1.1 percent in 2026 and 1.5 percent in 2027, "generally in line" with the estimates it provided in its October Monetary Policy Report.

The current interest rate "remains suitable" for keeping inflation near target levels, but the central bank is "ready to react" if the outlook changes, Macklem told reporters, reiterating statements he has made in recent meetings.

The bank's conclusion that rates are at a suitable level does not surprise Avery Shenfeld, chief economist at CIBC Capital Markets, in a note to clients.

"If there's a slight inclination here, it still leans towards concerns regarding growth because of trade uncertainties, and a bit more assurance that underlying inflation is slowing," he wrote.

"We will maintain our forecast for no interest rate adjustments by the Bank in 2026, but consider the possibility of a further cut more likely than an increase, given the challenging landscape in trade negotiations ahead, and a starting situation that still features considerable economic slack."