A stark divergence in inflation forecasts for North America's two largest economies is setting the stage for potential monetary policy shifts with significant implications for global financial markets, including cryptocurrencies. On one side, TD Securities delivers a sobering warning that U.S. inflation, as measured by the core Personal Consumption Expenditures (PCE) index—the Federal Reserve's preferred gauge—is poised to re-accelerate through 2025 and into 2026.
TD Securities' analysis points to a reversal of the disinflationary trend from late 2023-2024, driven by a tight labor market sustaining wage growth above 4%, persistent services inflation (over 60% of the core PCE basket), geopolitical supply chain disruptions, and the risk of entrenched consumer expectations. Their model suggests these forces will outweigh deflationary pressures in sectors like used cars, leading to a measurable uptick in year-over-year PCE inflation. This forecast challenges the market's expectation of imminent Fed rate cuts and suggests the Federal Open Market Committee (FOMC) may need to maintain a restrictive "higher-for-longer" stance or even consider additional hikes.
Conversely, RBC Capital Markets analysis highlights a significant cooling trend in Canada. Statistics Canada data shows headline Consumer Price Index (CPI) growth slowed to 2.1% year-over-year in February 2025, the third consecutive month within the Bank of Canada's 1-3% target range. Core measures also moderated. This disinflation, attributed to normalized supply chains, moderated domestic demand, and stable commodity prices, provides the Bank of Canada with enhanced flexibility for potential policy adjustments, including a projected path of gradual rate normalization beginning in mid-2025.
The contrasting outlooks create a potential policy divergence. A re-accelerating U.S. PCE could force the Fed to delay easing, supporting the U.S. dollar and keeping global financial conditions tight. Meanwhile, a cooling Canadian CPI allows its central bank more room to maneuver. This divergence impacts interest rate differentials, bond yields, equity valuations, and currency markets—all key macro drivers for risk assets like cryptocurrencies. The news underscores that central bank policies in 2025-2026 will remain highly data-dependent, with inflation trends being the primary determinant.
