The Bank of Canada lowered its target for the overnight rate by 25 bps, to 4% today. This came as a surprise to pretty much no-one: core inflation is below the 2% target, and everyone can see the signs of a US slowdown. Either of those is a sufficient reason to lower interest rates.

Although the Fed has seen fit to hit the panic button, there’s not much reason for the Bank to do so – at least, not yet:

• The Bank still has lots of room for further interest rate cuts, if necessary: the target rate is still two points above inflation. The US federal funds target is now at or below inflation, so real rates there are already pretty low. It’s hard to see how the Fed could go any further, especially since US inflation is already starting to drift out of most central bankers’ comfort zone.
• The Canadian economy is starting from a much stronger position than is the US economy. While the employment-population ratio in the US is still 2 ppts below its 2001 peak, employment rates in Canada increased by 2 ppts, and have been setting records for the past couple of years.

According to the Bank’s statement, "further monetary stimulus is likely to be required in the near term", so we can look forward to another rate cut on March 4. Right now, I’d be looking at another 25 bps, but that opinion is likely to evolve as data come in over the next six weeks.