Markets are struggling to gain traction as the U.S. government reopens after a record shutdown and traders reassess the path for Federal Reserve policy. Treasury yields are steady, equity futures are mixed and the U.S. dollar index is edging lower in early trading.
BNN Bloomberg spoke with Karl Schamotta, chief market strategist at Corpay, about the hawkish shift in rate expectations, the muted response to Washington’s return to business and how major currencies — including the Canadian dollar and British pound — are reacting as economic data remains limited.
Key Takeaways
- The U.S. dollar is drifting lower as markets absorb the end of the shutdown and look for clearer signals from the Federal Reserve.
- Traders have scaled back expectations for a December Fed rate cut to about 53 per cent amid more hawkish commentary from key policymakers.
- Missing U.S. inflation and employment data is complicating the outlook, with a pause followed by a possible January cut emerging as the base case.
- The British pound is underperforming after weaker-than-expected U.K. growth data increased the likelihood of a Bank of England rate cut.
- The Canadian dollar is grinding higher alongside global peers but remains constrained by soft domestic data and cautious Bank of Canada policy.
Read the full transcript below:
ANDREW: We’ve seen U.S. stocks struggling a little today. Our guest says there’s less optimism about the Federal Reserve continuing with these interest rate cuts, at least in the near term. Let’s get more from Karl Schamotta, chief market strategist at Corpay. Karl, thanks very much indeed for joining us. What’s jumping out for you in the markets today?
KARL: Yeah. I mean, we’re still seeing this hawkish repricing of Fed expectations across the curve, but particularly around the December meeting.
This is on the basis of Susan Collins’ comments yesterday — that she was waiting to see what might happen in labour markets, that she’s still aware of inflation risks running a little too high, and that she wants to take a cautious approach to cutting rates in the coming months.
And I think the key thing there is that Susan is typically considered a centrist on the rate-setting committee. She’s not someone who has traditionally expressed dovish views publicly.
So this really tells you there’s a split on the committee, and that the contingent of those who want to pause in December — who want to wait for more data to get a clearer view of what’s happening in the economy — is growing.
And so this is forcing up U.S. yields a little bit and tightening rate differentials across the currency markets.
ANDREW: What about the lack of information in the market — economic data such as crucial jobs figures? It’s not just a worry for econometrics nerds.
KARL: That’s right. There’s definitely another breed of nerd that needs to worry about this — monetary policymakers who rely on this information to assess the economy and make decisions.
But we are going to begin seeing data in the coming weeks that will help markets recalibrate expectations for the December and early-year Fed meetings. That will help to some extent.
I also think Fed officials themselves behave much like private-sector economists in that they’re generally not focused on any one data point. They look at a wide variety of indicators.
Right now they’re looking at private-sector measures, the upcoming Beige Book survey, and a huge range of other factors. So far, those indicators suggest a mild slowdown in labour markets and relatively tame inflation pressures.
So to me this still suggests the odds are slightly in favour of a cut in December, even though the possibility of waiting until early in the new year is also very strong.
ANDREW: Can we switch to AI? Maybe we’ll put up a five-year or 10-year chart for the Nasdaq Composite as a proxy for tech stocks. The Wall Street Journal has a headline I mentioned: “Big tech’s soaring profits have an ugly underside: OpenAI’s losses.” The Journal argues AI startups such as OpenAI and Anthropic are sinkholes for losses — and that can only continue for so long, presumably.
KARL: You would think. The reality is these things tend to go on a lot longer than anyone expects.
As much as we’re seeing this AI ebullience, there are also macroeconomic factors sustaining asset prices. The Fed thinking about easing is a major factor. The U.S. economy slowing but not crashing is another. Financial conditions remain incredibly abundant.
So there’s a liquidity backdrop pushing assets higher. And that means — as the Wall Street Journal suggests — the party goes on until the liquidity taps get turned off.
This circular lending and investment model dominating the AI sector looks vulnerable if we see a significant withdrawal of liquidity. That could lead to a major knock to asset prices.
And I’ll say, I’m sure you’re hearing the same thing: virtually every market participant I talk to lately is looking for the exits. They’re in their positions, but they’re signing prenuptials — preparing a plan for when it goes wrong.
So this does not seem like the typical bubble. It’s very well broadcast this time. What we need to worry about is the reaction function — what happens if something spooks the herd and everyone rotates out of tech stocks into defensive sectors and safe havens.
ANDREW: We just got that federal budget. We’re talking about a deficit for 2025-26 of almost $80 billion. Many people say it was wishy-washy — no big spending cuts, no decisive moves to stimulate the economy. Some wanted a cut in the corporate tax rate.
KARL: That’s right. It landed in markets with a soft thud.
We didn’t see dramatic moves in the currency. I looked at the Canadian dollar in the hour after the budget dropped — it moved 10 pips, less than it normally moves in an hour.
Markets went in with relatively high hopes and some fear about possible heavy borrowing. Instead, it looked like a cautious set of initiatives and not the comprehensive top-down tax reform Canada needs.
Perhaps the Liberals are hoping for a stronger political footing in the future to implement deeper reform. But for now, it’s not enough to move the needle for the Canadian economy.
ANDREW: Quite a few corporate leaders think that if we’re going to raise taxes to rein in the deficit, a higher sales tax is the way to go. Economists often say sales taxes are efficient because they don’t discourage investment.
KARL: That’s right. If an economist were to design a dream tax, it would look like a sales tax.
It’s regressive, it impacts high earners and high consumers more directly — especially if well targeted — and it incentivizes the right kinds of activity.
On the flip side, we want a tax structure that encourages investment and rapid depreciation of new plant and equipment. We’ve seen some moves in that direction.
But when we look at Canada’s fiscal position, despite alarmist headlines, the debt problem is not on government balance sheets — it’s in households and corporates.
After the ’90s, Canada made a major effort to bring down government debt. Now the issue is that households and corporates have picked it up.
So I don’t worry that the government will need to raise taxes soon to offset spending. I worry more about weak investment and weak consumer demand.
ANDREW: What about the fear that if you include provincial debt, we actually have a bigger problem? And if you exclude CPP and QPP assets — which we can’t really touch — the balance sheet looks worse.
KARL: Yeah, there’s a lot of argument about shell games.
The budget numbers understate Canada’s debt as a share of GDP because some of the debt is sub-national and there are various offsets.
But currency traders and international economists look at general-government debt as a whole. When you calculate it that way, Canada is the second-lowest in the G7 — just behind Germany.
So the structural quirks don’t change the bigger picture. And there’s a lot of confusion and misinformation out there. Many market participants think Canada’s fiscal debt problem is worse than it actually is.
ANDREW: We’ve touched on this before. Improving productivity is complex. Do you think we can really reduce red tape? Every society sees bureaucracy expand. Will we streamline anything?
KARL: I hope so. I’m thinking of doing a presentation series next year titled “Overruled.”
There’s an entrenched impulse to add more regulation in English-speaking countries. It increases steadily and is very hard to roll back. It requires all parties to align incentives — and that rarely happens.
Canada’s decentralized governance — strong municipal and provincial powers, and a federal government mostly limited to tax and spend — makes it even harder.
The push is there and the intention is there, but the structural incentives are not.
And businesses complain about red tape until it’s their own sector — then they want more rules that protect them. That’s the core of the problem.
We don’t see a decisive turn away from regulation in any Western country. The only successful examples are places like Singapore, which — politely put — are not fully democratic in how they implement policy.
So I’m not sure what the path forward is, but we can’t count on a sudden 90-degree shift just because we’ve had an external shock from Donald Trump.
ANDREW: Karl, thank you very much indeed. Really appreciate it. Karl Schamotta, chief market strategist at Corpay.
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This BNN Bloomberg summary and transcript of the Nov. 13, 2025 interview with Karl Schamotta are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
