balanced fund quarterly report
March 31, 2025
Economic Commentary
U.S. President Trump rattled global financial markets in early February as he announced that tariffs would be applied to Canada and Mexico as a result of the perceived fentanyl crisis of drugs entering into the U.S. By stating that it was a national emergency, he was able to avoid congressional approval in order to implement his tariff plan. In addition, 20% tariffs were also going to be applied to all Chinese goods entering the U.S. Additional measures were announced and eventually delayed, causing extreme volatility in global financial markets. April 2 was deemed Liberation Day by President Trump when he would announce his reciprocal tariff plan. This plan implemented higher-than-expected tariffs on many countries around the world, with tariffs of at least 10% across the board, with several countries at much higher levels. The announced tariffs on Canada and Mexico were lower than expected, however, the existing onerous tariffs are still in place, leading to uncertain economic conditions going forward. The initial market reaction was negative as equity markets around the world plunged dramatically.
The Bank of Canada continued lowering interest rates as they cut rates by 25 bp each at its two meetings during the quarter. Uncertainty with respect to the impact that Trump’s tariffs will have on future economic conditions certainly came into play in the Bank of Canada’s latest interest rate decision. The Bank of Canada remains the most aggressive central bank amongst the G7 countries in terms of both the magnitude and number of interest rate cuts since the beginning of last year. After cutting rates at each of its last three meetings in 2024, the U.S. Federal Reserve decided to pause at its two meetings during the quarter. Despite inflationary fears developing on the back of Trump’s tariff plan, there are concerns that the economy will weaken going forward. As a result, the Fed decided to stand pat, although they did forecast two additional interest rate cuts by the end of the year. They also lowered expected GDP growth and increased projected inflation levels over the next two years.
