The US Federal Reserve announced on Wednesday that it has cut the federal funds rate by 25 basis points, from 4.00% to 3.75%, in a move that aligned with market expectations.

The Bank of Canada kept its key interest rate at 2.25 percent, a move widely expected after encouraging third-quarter data showed the Canadian economy’s ability to withstand some of the disruptions stemming from the trade war.

Governor Tiff Macklem said in his opening remarks on Wednesday that the current rate “appears to be at the right level” to support the economy through a “structural transition period,” while keeping inflation near the bank’s 2 percent target.

Macklem added: “That said, uncertainty remains high, and the range of potential outcomes is wider than usual. If the outlook changes, we are prepared to act.”

During the bank’s October meeting, the governor warned that the Canadian economy would face structural damage from U.S. tariffs.

Since then, the economy has proven more resilient than expected: GDP and job growth both beat forecasts in the third quarter, and the unemployment rate fell to 6.5 percent in November.

Even so, consumer spending and business investment remained nearly flat. That is likely to change in the fourth quarter, as the bank expects economic growth to slow.

Inflation is holding slightly above 2 percent, while the Bank of Canada’s core inflation measures — which exclude volatile components such as fuel prices and tax changes — are trending toward a level closer to 3 percent.

Although key Canadian sectors such as steel, aluminum, autos, and lumber have come under heavy pressure from U.S. tariffs — with broader effects on business investment — Macklem stressed that “the economy is showing overall resilience.”

The governor pointed to recent revisions by Statistics Canada to economic growth figures for 2022, 2023, and 2024 as one possible explanation for that resilience.

He said: “The revisions suggest that the Canadian economy was healthier than we thought before encountering the trade dispute with the United States. Specifically, they indicate that both demand and productive capacity were higher heading into this year.”

He later noted that although several major Canadian industries have been hit by high tariffs, the rest of the economy continues to “operate largely tariff-free” in its dealings with the United States.

He added: “The average tariff imposed on Canada by the United States is among the lowest in the world — around 6 percent.” And he concluded: “We have not yet seen spillover effects reaching the broader economy.”

U.S. stock indexes moved higher on Wednesday as investors closely awaited the Federal Reserve’s interest rate decision.

The Fed is set to announce its policy decision later today, with expectations pointing to an interest rate cut.

Markets are also focused on remarks from Fed Chair Jerome Powell and the updated projections from members of the Federal Open Market Committee following the meeting, as investors look for clues on the central bank’s outlook for monetary policy and the U.S. economy in 2026.

As for trading, the Dow Jones Industrial Average rose 0.5% to 47,780 points by 16:45 GMT (a gain of 220 points), while the S&P 500 added 0.1% to 6,842 points (up 2 points), and the Nasdaq Composite fell 0.3% to 23,501 points (down 75 points).

Palladium prices declined during Wednesday’s trading as markets closely awaited the Federal Reserve’s interest rate decision.

The Federal Reserve is set to announce its policy decision later today, with expectations pointing toward an interest rate cut.

Last month, UBS raised its palladium price forecasts by $50 per ounce across all time horizons, citing expectations that the market will continue to experience a slight supply deficit through next year.

UBS said sentiment in the options market toward palladium remains moderately positive, although it has moved closer to neutral compared with the beginning of the year.

The implied volatility spread between call and put options for the one- to six-month period currently stands between 1.8% and 2.4%, down from a peak range of 3.4% to 9.1% earlier in the year.

The earlier rise in optimism, from early November 2024 to late January 2025, was likely driven by concerns over potential new sanctions targeting Russian palladium exports. Russia accounts for about 40% of global mine supply, but as Russian metal continues to flow into markets, concerns about supply disruption have eased.

Near-term price volatility will depend largely on the results of the U.S. Department of Commerce’s Section 232 investigation into critical minerals, as well as the anti-dumping petition filed by Sibanye and the United Steelworkers union.

Market participants are awaiting the U.S. administration’s decision on whether to impose tariffs on palladium imports.

Despite raising its price target, UBS noted that it sees greater upside potential in other precious metals compared with palladium, even as the palladium market is expected to remain in a slight supply deficit through 2026.

Meanwhile, the dollar index fell 0.2% to 99.02 points by 16:32 GMT, after hitting a high of 99.2 points and a low of 99.00 points.

As for trading, palladium futures for March delivery fell 2.8% to $1500.0 per ounce at 16:32 GMT.