Three Things We’re Watching This Week

1. Jackson Hole
For avid skiers, Jackson Hole is known for its deep powder and challenging runs; for policy nerds, it’s the location of the Federal Reserve’s annual Jackson Hole Economic Symposium, sometimes a source of market-moving economic news. At this year’s symposium, Chairman Jerome Powell suggested the central bank may be open to lowering interest rates. Some investors might already be pricing in a quarter-point rate cut on September 16, but a lot could still happen before then. The Fed has a dual mandate to promote maximum employment and keep inflation in check, and the latest data on those two things is still forthcoming. U.S. employment figures will be released on September 5, while the next key inflation data gets published on September 11 – just five days before the Fed meeting.

What we’re watching: All eyes will be on the Fed’s next meeting on September 16 to see if it follows through with a rate cut. While the market might already be pricing in the significant possibility of a rate cut, much of the focus will be on Powell’s press conference later that day for clues as to whether or not future cuts are on the horizon.

2. Canada’s GDP
There’s good news and bad news surrounding Canada’s latest GDP figures, which were released on August 29. First, the bad news: Our economy contracted by 1.6 per cent annually in the second quarter, with most of the weakness in trade-exposed sectors. As RBC Economics points out, most of the decline came from “a steep drop in exports, tied to a broad-based fall in U.S. imports after the surge in pre-tariff stockpiling in Q1.” According to Statistics Canada, exports fell by 7.5 per cent, with cars, machinery and equipment and travel services suffering most. And now the good news: despite economic uncertainty, households still spent, with consumption expanding by 4.5 per cent in the second quarter, up from 0.5 per cent in Q1.¹ RBC’s consumer spending tracker also shows that consumer spending remains strong, with RBC cardholder spending (excluding autos and gas) up 1.1 per cent in July.

What we’re watching: If trade concerns lessen, which consumer spending numbers indicate they may, this decline could be temporary. At the very least, strong consumer spending could help keep Canada out of a recession (defined by most commentators and analysts as two consecutive quarters of negative growth).² Statscan points to a modest 0.1 per cent increase in July, while RBC says labour markets are showing signs of stabilization. Is the worst behind us? Only time – and a little more trade certainty – will tell.

3. Loan loss provisions
Back in April, markets were going haywire as the world reacted to the new U.S. trade policy. In response, costs were expected to tick higher, which caused banks to set aside more money to cover loan losses, both from businesses and consumers struggling to make ends meet. But as the sun sets on summer, the economy is proving to be far more resilient than expected. The major Canadian banks are now cautiously optimistic that the business uncertainty caused by the tariffs is subsiding. In the last week of August, several of Canada’s big banks reported higher profits during the previous quarter, in part, because some were able to set aside less money to cover bad loans.^3,4,5,6 Recently, Prime Minister Mark Carney offered up an olive branch to the U.S. by pledging to remove the retaliatory tariffs put in place earlier this year by September 1. The move was well-received in Washington, resulting in the first high-level trade talks since the U.S. increased tariffs on non-USMCA goods to 35%, up from 25%.

What we’re watching: Carney’s move could help reduce pressure on the Canadian businesses that have been importing tariffed goods, which may lessen the need for banks to cover as many loan losses. More broadly, questions remain around whether the Prime Minister will be able to secure some relief from U.S. tariffs – at least for certain sectors. The removal of the levies on aluminum and steel, and on the auto sector doesn’t appear to be on the table at the moment.⁷ To deal with those thornier issues and find a longer-term trade deal, the government’s focus will likely shift to the mandatory review of CUSMA (the Canada-United States-Mexico Agreement) next year. Preserving the pact has been key to limiting the economic damage in the trade war.

Sources
^1. _{RBC Economics, "Canadian GDP Update", August 2025}
^2. _{International Monetary Fund, "Recession: When Bad Times Prevail"}
^3. _{RBC, "Royal Bank of Canada Reports Third Quarter 2025 Results", August 2025}
^4. _{National Bank, "Report to Shareholders: Third Quarter 2025", August 2025}
^5. _{CIBC, "CIBC Announces Third Quarter 2025 Results", August 2025}
^6. _{TD, "TD Bank Group Reports Third Quarter 2025 Results", August 2025}
^7. _{CBC, "LeBlanc has 'constructive' meeting with U.S. counterpart as trade talks continue", August 2025}