Markets expect the Bank of Canada to keep interest rates unchanged this week, with strong labour data reinforcing expectations for a prolonged pause. Investors are watching for how Governor Tiff Macklem addresses newly emerging bets on a rate hike in late 2026.
BNN Bloomberg spoke with Karl Schamotta, chief market strategist at Corpay, who said rising rate expectations could inadvertently tighten financial conditions, while global risks — including China’s surging trade surplus — are adding pressure to the economic outlook.
Key Takeaways
- Strong Canadian job gains have solidified expectations that the Bank of Canada will keep interest rates unchanged.
- Markets are pricing in the possibility of a BoC rate hike by late 2026, raising the risk of premature tightening in financial conditions.
- Schamotta warns the bank may adopt a slightly more dovish tone to prevent markets from tightening conditions too quickly.
- China’s record trade surplus is displacing manufacturing activity globally, raising economic and political tensions.
- Rising global protectionism and government intervention point to a reversal of the postwar era of globalization.
Read the full transcript below:
ANDREW: Our guest says the Bank of Canada is likely to stand pat when it comes to interest rates on Wednesday. We’re joined by Karl Schamotta, chief market strategist at Corpay. Karl, thanks very much for joining us. And those strong job numbers on Friday — do you see those as cementing the case that the Bank of Canada holds off on any interest rate changes?
KARL: Oh yeah, I think the bank itself has definitely moved to the sidelines. Officials have said that rates are at a good place. There’s no momentum here for adjusting policy at this point. What’s sort of crazy about it, though, is that the strength of those job numbers led markets to price in a rate hike by the October meeting in 2026. So I would caution market participants here that although the bank is very likely to deliver on expectations by holding policy firm and not making any adjustments today, Macklem might actually want to talk markets down a bit. He might want to sound slightly more dovish, simply on the basis that officials don’t want to see an unwarranted tightening in financial conditions if markets are now expecting rates to start climbing by the end of next year.
ANDREW: So you mean that in anticipation of a possible interest rate increase late next year, the markets might start adjusting to that. What would people start doing, Karl?
KARL: Generally what happens is that if we expect rates to begin going up in the future, interest rates in the market begin moving up in sympathy with that. And what that does is create a feedback loop. It unwinds the loosening in financial conditions that the bank had been trying to achieve. It starts to translate into a tightening in financial conditions, making it more difficult and more expensive to borrow. All of that works against what the bank might be trying to achieve. It may be reasonably content with that for now, but it doesn’t want to see this go too far, to the extent that it starts to eat into the progress made in housing markets and in bolstering overall economic growth.
ANDREW: A pretty amazing story that the Chinese surplus is now above US$1 trillion despite a slide in sales to the U.S. You call this widening trade surplus the biggest fault line in the global economy.
KARL: That’s right. I think this is by far the biggest issue facing the world economy right now. Although direct exports to the U.S. are falling — in other words, the direct channel of manufactured products going from China to the U.S. is going down — goods are being transshipped to other countries. To some extent, other countries are acting as intermediaries in supply chains. For example, Chinese goods moved to Vietnam might receive light reprocessing and then be sent on to the U.S.
Or Chinese exports are crowding out imports in other countries. China is taking that surplus of cheap products it is producing — and prices have been going down in recent years — and pushing those products into Europe, Canada and emerging markets. That leads to a situation in which manufacturing employment comes under pressure in those countries, GDP comes under pressure, and we see the same sort of political schisms widening that we saw in the U.S. over the last two decades.
My worry is that if China doesn’t change course, and if the U.S. doesn’t change course, we could be looking at a round of disruption everywhere else as leaders try to raise trade barriers and fight their own corner as much as they can.
ANDREW: So the risk of a trade war, in other words?
KARL: Yeah — trade war — although I would say at this point “trade war” probably doesn’t do it justice. We’re well beyond the idea that we’re simply going to raise protectionist barriers. What we’re seeing is the march of government intervention around the world. Governments are becoming much more activist in how they manipulate variables in their own economies and how they work with — and against — the rest of the world to achieve geoeconomic goals.
Fundamentally, what this leads to is a reversal in the postwar economic order — that era of globalization that generated so much of the wealth we have today. I don’t see this as a positive development. I would hope that China tries to rebalance toward domestic demand and support consumer spending, and that the U.S. rethinks its tariff regime. Right now it’s throwing bilateral tariffs across a wide range of countries and products, and every economist knows that approach doesn’t reduce the trade deficit. The U.S. needs a different growth model to reduce its trade deficit and the global imbalance that has emerged.
ANDREW: Karl, thank you very much, as ever. Really appreciate it.
KARL: Thanks for having me.
ANDREW: Karl Schamotta, chief market strategist at Corpay.
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This BNN Bloomberg summary and transcript of the Dec. 8, 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.
