Tariff exemptions were Canada’s salvation in 2025. Why they’re at risk in 2026

Members commenced their discussion of financial conditions by reviewing developments in advanced economy equity markets. Market sentiment had deteriorated briefly amid concerns about elevated valuations, especially for global technology companies. Equity prices had fallen for a period but there had been a subsequent rebound in many countries. In the United States, this partly reflected expectations of additional monetary policy easing. However, the decline in Australian equity prices had been more persistent than in other markets, reflecting a shift higher in the expected path for the cash rate and a reappraisal of valuations in some market segments. Corporate bond yields had increased in some countries, but spreads to government bond yields remained low across the world. Members observed that investors in equity and corporate bond markets continued to price in a benign global economic and financial outlook and appeared willing to accept low levels of compensation for the risk of weaker outcomes. Members noted that financial market participants expected the US Federal Reserve to cut its policy rate at its 10 December meeting, and to continue easing policy in 2026 as the immediate impacts of higher tariffs and prior fiscal stimulus waned. By contrast, the European Central Bank was not expected to cut rates further and the next move in policy rates in Canada, New Zealand, Sweden and Australia was expected to be up. The Bank of Japan was expected to continue gradually raising its policy rate amid persistent inflationary pressures. Members discussed the rise in market-implied expect RBA Considered Potential Rate Increase in 2026: Minutes RBA Flags Upside Inflation Risks Based on Recent Economic Data RBA: MEASURES OF CAPACITY UTILISATION POINTED TO SUPPLY CONSTRAINTS RBA: FULL IMPACT OF POLICY EASING THIS YEAR WAS YET TO BE FELT RBA: BOARD JUDGED LABOUR MARKET WAS STILL A LITTLE TIGHT, OUTPUT GAP POSITIVE RBA: POSSIBLE HOLDING CASH RATE STEADY FOR SOME TIME COULD BE SUFFICIENT TO KEEP ECONOMY IN BALANCE RBA: BOARD FELT IT WOULD "TAKE A LITTLE LONGER" TO ASSESS PERSISTENCE OF INFLATION RBA: BOARD JUDGED IT TOO EARLY TO TO KNOW IF RISE IN INFLATION WOULD PROVE PERSISTENT