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Dan Phillips, Douglas Porter, CFA, Camilla Sutton, CFA October 03, 2025 Market Insights

A clearer view of risks and reduced uncertainty have supported investor confidence in recent months, even if the economic outlook in the U.S. and Canada is not entirely rosy.

Earlier in 2025, market participants had many questions about what U.S. tariffs would ultimately look like, what that could mean for inflation and how central banks would respond. Today, many of those questions have been answered, giving economists and investors the information they need to factor those risks into their forecasts and portfolios.

To make sense of what’s happened so far this year and how that context will shape 2026, BMO hosted a panel discussion titled, “What’s Next in Economics, Markets, and Trade?” Camilla Sutton, Managing Director and Head of Equity Research, Canada & UK, BMO Capital Markets, moderated the panel, which included:

Doug Porter, Managing Director & Chief Economist, BMO
Ernie Tedeschi, Director of Economics at Yale University’s Budget Lab and former Chief Economist at the White House Council of Economic Advisers
Dan Phillips, Chief Investment Officer, BMO U.S. Wealth Management.

Economic outlook

For most of the year, business leaders and investors have had no shortage of curveballs to handle, including trade tensions, shifting U.S. fiscal and tax policies and, more recently, the U.S. government shutdown. On the one hand, it may seem as though economic and business confidence is quite weak, but the reality is more nuanced, BMO’s Chief Economist, Doug Porter, explained.

For the past nine months, everyone has been trying to figure out how these complicated variables were going to weigh on inflation and growth, he explained. Now the concern has shifted somewhat from inflation to the weakening employment picture. “It’s clear that payroll growth is slowing quite markedly,” he says.

The U.S. unemployment rate is at 4.3%, up nearly a full percentage point from its low in April 2023, noted Ernie Tedeschi, Director of Economics, Yale University’s Budget Lab. That number is not alarming, but it is right on the cusp of what economists would define as full employment. “If you have a job in the United States right now, you’re fine, but if you’re looking for a job or are a new entrant, it’s a very difficult labor market,” he says.

In terms of the overall health of the U.S. economy, neither Porter nor Tedeschi felt there was any reason to expect a recession. In the final read on the second quarter, U.S. GDP growth rose to 3.8% while third quarter growth is expected to come in somewhere between 2.5% and 3%, said Porter. “The recent GDP numbers are still quite solid,” he said. “Overall, we’re not looking at a particularly robust year for the U.S. economy, but not a weak one either.”

Tedeschi shares a similar view. “What we have in the U.S. is a split personality economy right now,” he said, pointing to the dichotomy between GDP growth and slowing employment. Tedeschi did note that the U.S. economy is partially being supported by private investment in Artificial Intelligence technologies. The challenge is understanding how durable that investment will be.

For 2025, BMO Economics expects U.S. GDP growth will come in slightly above 2%, with similar growth expected in 2026, as well. In Canada, BMO Economics is projecting GDP will rise by a little more than 1% this year, so not quite a recession, said Porter.

Tariff fears ease

Market concerns about U.S. tariffs that triggered stock market volatility in April has largely subsided.

Tariffs are impacting consumer spending on durable goods, which turned negative early in the year, but otherwise the U.S. consumer has been resilient. Still, Tedeschi said there is clear evidence that tariffs are causing prices to rise, with costs for core goods about 2% higher than where he would have predicted based on 2024 trends. “It’s not huge in the grand scheme of all prices,” he says, “but that is a noticeable effect, especially for consumers.”

When it comes to the relationship between Canada and the U.S., Tedeschi noted how effective the USMCA regional trade agreement has been at blunting the impact of U.S. tariffs on Canada. When you look at the effective tariff rate of all the duty-related revenue the U.S. is collecting from Canadian imports, it’s only 3%, he said. “We were expecting roughly 50% of trade with Canada to be tariff free under USMCA, and it’s been almost all trade [that has been covered under USMCA and; therefore, tariff free],” he said.

Interest rates expected to fall

BMO Economics is projecting the U.S. Federal Reserve may cut benchmark rates by another 75 basis points next year, following a similar degree of cuts in 2025, taking them down to 3%.

North of the border, the Bank of Canada (BoC) has shifted its focus away from inflation risks and more towards somewhat weaker growth, said Porter. Ultimately, he sees the BoC bringing the overnight rate down to 2%, meaning two more cuts. “The timing of that’s a little bit unclear at this point, but for now, we’re looking for a skip at the next meeting in October, then a cut in December, with the final cut in March of next year,” he said. “A lot depends exactly on how the inflation and unemployment numbers turn out in the months ahead.”

An improving investing outlook

Few predicted how well equity markets would perform this year, with the S&P/TSX Composite leading the way.

Investors have not only gained more clarity around the impacts of tariffs on the wider economy, they also have more confidence to invest. “Markets hate uncertainty,” said Dan Phillips, Chief Investment Officer, BMO U.S. Wealth Management. Knowing the effective tariff rate, the impact on the job market and how the Fed could react – even if some signals are negative – has helped investors make better decisions based on their perceptions of risks, he explains.

Although Phillips acknowledges valuations look high, a one-year timeframe has never been a reliable predictor of market performance. Instead, he sees a more positive outlook.

Citing the potential for more Fed rate cuts, upcoming U.S. midterm elections, deregulation, and continued investment in AI, Phillips said, “There are a number of catalysts that we could see over the next six to 12 months that could continue to push markets higher.”

Visit our Cross-Border Perspectives hub for more timely insights about international trade’s impact on economies and markets.

Transcript

Speaker 6:
Will the final few months of the year bring more uncertainty? Or will the outlook on growth and inflation in North America bring stability for investors? On October 1, BMO hosted a discussion entitled “What’s Next in Economics, Markets, and Trade?” Guest panelist Ernie Tedeschi, Director of Economics at Yale University’s Budget Lab and former Chief Economist at the White House Council of Economic Advisors, joined a panel of BMO experts to discuss what’s in store for the economy. Let’s listen in.

Speaker 1:

Welcome to Markets Plus we're leading experts from across BMO discuss factors shaping the markets, economy, industry sectors, and much more. Visit bmocm.com/markets+ for more episodes.

Camilla Sutton:

Hello, and welcome. I'm Camilla Sutton, MD and head of equity research in Canada and the UK for BMO Capital Markets. With just a few months left into year-end, we thought it would be great if we could all come together and start to cut through some of the noise and try to bring some clarity to the economy, trade policy, markets, how they've unfolded and what to expect from here. And with that, I am really pleased to introduce the three excellent panelists I have today. Ernie Tedeschi, director of economics at Yale University Budget Lab and former chief economist at White House Council of Economic Advisers. Doug Porter, chief economist here at BMO. And Dan Phillips, chief investment officer, BMO US Wealth Management. And with that, let's get right to the questions. Doug, can you start us off here and walk us through where we are in the US and Canadian economies when it comes to the outlook for GDP, inflation, employment, the Fed and Bank of Canada?

Douglas Porter:

Sure thing, Camilla, I'll do my best. I must say it's a very complex economic environment we've been dealing with for most of this year between all the uncertainty over trade, tax policy and now today's news of a government shutdown. There's certainly been no shortage of different curveballs that have been thrown at us as economic forecasters. I think if we stand back and look at the really big picture, I'd say that the overall tone among, if you look at consumer confidence or business sentiment surveys is quite weak. But the reality is a little bit more nuanced and I would say a bit more neutral, maybe the best way to characterize it is how the Fed has summed it up. And that is that they believe that the balance of risks have shifted a bit. One of the reasons why they're on hold for nine to 10 months was the fact that they just weren't sure how all these different complicated variables were going to play out for an inflation and growth. And they wanted to see which way the balances really were leaning.

And their ultimate view is that there's a little bit less concern on the inflation front and a little bit more concern on the weak employment area. And we saw a great example of that today in the private sector survey, the ADP number that showed a fairly big decline in employment in the early read for September, and that was actually the third decline in the past four months. I think it's clear that payroll growth is slowing quite markedly. Now some of this is as much a supply issue as a demand issue. In other words, there also is the coincident factor that the labor force growth is slowing quite dramatically for a variety of reasons. But I think there's very little doubt that job growth is slowing and this has tilted the balance for the Fed.

Now it's interesting at the same time, of course just last week we saw that our second quarter GDP was revised up to 3.8% and the early read on the third quarter is somewhere between 2.5% to 3%. So, at least on the surface the GDP numbers are still quite solid. Now, that's in the context of we actually saw a decline in first quarter GDP, so overall we're not looking at a particularly robust year for the US economy, but not weak either. At the end of the day, we think that growth will be just a little bit below 2% this year and we suspect that it'll be in that neighborhood next year as well. So, against that backdrop and still some lingering core inflation pressures of around 3%, we do believe that the balance suggests that the Fed will continue to ease. We look for another quarter point cut at the upcoming October meeting and the market has pretty much got that fully priced in.

And then we do see another quarter point cut in December as well. And again, the market's largely leaning in that direction. We think the cadence though slows in 2026. We're looking at rate cuts every other meeting for the first portion of the year and that we'll see another 75 basis points of cumulative cuts in 2026 bringing the Fed funds rate to just a little bit below 3%, which we think is in the range of just a bit below neutral. So, they're going to go from fairly restrictive right now to somewhat on the easy side of things by the end of 2026. And we do believe that that's entirely appropriate. I would just add that that's a non-political forecast that's assuming no major change in the bias at the Fed. And we all know that Mr. Powell will be replaced in May of next year, and I think the Fed is likely to take on a somewhat more dovish hue.

And overall I think the risk to our call ultimately is that the Fed might go a bit faster and perhaps a bit more aggressively when all is said and done in 2026. Turning briefly to Canada, for sure, Canada has been hurt by the trade or there's no two ways about it. I think overall though the hit has been a little bit less intense than what we and others were expecting say six months ago. The economy did contract in the second quarter, but that did follow a slightly better than expected first quarter. I would actually say at the end, the net economic impact is not overly surprising. We're looking at growth of just a little bit more than 1% this year in Canada when we sorted all out, not quite a recession.

It's a close run thing for sure, but we do think the economy will avoid a recession and that's because the trade effect is so concentrated on just a few specific sectors. No question those sectors are facing the full brunt of this. That's metals, autos, and lumber. But aside from that, most other sectors are really not that affected by the trade war, and this is one of the reasons why the economy is likely to escape recession. Nevertheless, not unlike the Fed, the view at the Bank of Canada is that the risks have tilted to somewhat weaker growth versus less concerned about inflation. And like the Fed, we saw the Bank of Canada get off the sidelines and cut again in September. We do not think that's the last cut. We've been pretty consistent saying that the Bank of Canada would ultimately bring overnight rates down to 2%, so that means two more cuts.

The timing of that's a little bit unclear at this point, but for now we're looking for a skip at the next meeting in October, then the next cut in December, and then the final cut in March of next year. Again, we're not set on that timing. A lot depends exactly on how the inflation and employment numbers turn out in the months ahead, but for now we are calling for two more rate cuts from the Bank of Canada and the Canadian economy just avoiding recession. So, that's the big picture and I'll turn it back to you, Camilla. Thank you.

Camilla Sutton:

Doug, thank you for that. There's a lot of information in a really tight period of time there. Ernie, why don't we get you into this here. Are there any areas that you see the economic landscape differently than Doug does?

Ernie Tedeschi:

Not many because I agree very strongly with what Doug said. I think that we have in the United States a split personality economy right now. So, on the one hand, as Doug mentioned, we had 3.8% annualized GDP growth in Q2. GDP now put out by the Atlanta Fed, which is the best now cast of Q3 is at 3.9%. I might be a little less sanguine on that because it's very tough to project inventory changes in modeling. And I think that there's a good chance that inventories could be negative in Q3, bringing down the GDP number as US retailers burn off their apparel inventories to try to blunt tariff-related price increases. But nevertheless, I think Q3 is going to be a fairly robust quarter one way or the other. The US consumer has held up too, if you look year to date, real consumption annualized... So, the first eight months of the year is 1.6%. Now that's not gangbusters gangbusters for the year, but that's perfectly fine and strong.

And I will say that durables spending in the United States is slightly negative year to date when you look over the first eight months. And that is all certainly a tariff-related story here. Very clearly there is a surge in private investment in computers and software in the United States that is very likely AI related. I'm also a little bit less sanguine about the ultimate effect on GDP because a lot of that investment has been imported. And of course if you import something, that doesn't mechanically or literally raise the output or production of what you're doing domestically, but nevertheless, it's clear that private AI investment is currently supporting the US economy. And so, I think that a lot of your outlook for this year and next year will depend on how durable you see that is.

On the other hand, we have a slowing labor market, which Doug already mentioned. So, the unemployment rate is up nearly a full percentage point since it troughed in April of 2023. Where it is right now, 4.3% is certainly not alarming in level terms, but it's right on the cusp of what economists think is like the full unemployment rate in the United States. We're in a low churn, low hire, low fire market. If you have a job in the United States right now, you're fine. But if you're looking for a job or a new entrant, it's very difficult labor market I think, not recession level but difficult than it was two years ago. Our job growth numbers in the United States have not been great. The data that we do have from the government and we won't get probably a jobs report on Friday because of the shutdown, even if we open up the day miraculously. But over the three months ending in August, job growth was just under 30,000 for the three months ending there, which is almost certainly below the break-even rate even with lower inflation in the United States.

And as Doug mentioned, the ADP number that we got today for September was negative, negative 32,000. So, putting it all together, I think that we're very clearly in what mechanically is a high productivity expansion for the United States, surge in output and GDP probably. Very slow employment growth, labor market growth. Sentiment is still down because, especially when you're thinking about the labor market, people think in terms of how easy to get a job and it's not very easy to get a job, but that doesn't mean that the overall economy is bad in the United States. I think that there are clearly some bright spots for the moment.

Camilla Sutton:

Ernie, that was really helpful. Thank you. Dan, why don't we get you in on this. You have a base case that really advocates for maintaining a modest risk-on position when it comes to investments. Can you walk us through what that means by North American asset class in terms of where you'd look to increase, where you'd look to pull back?

Dan Phillips:

Thank you, Camilla having me here today and happy to join the other panelists. So, as you mentioned, we are modestly risk-on in the current environment and as it relates to the positioning within, for instance, equities, we do have a little bit of a greater allocation or a tactical overweight to US equities over most of the rest of the developed world, including Canada. And really based on a view that perhaps the dollar sell-off that we saw earlier in the year was a bit overdone, especially despite some of the labor concerns as was earlier noted, the economic growth in the US continues at a very healthy clip and seems that it will extend into the third quarter and there's also a lot of investment to occur in the US, which of course requires US dollars to do so. So, that's a part of that thesis around being overweight US versus non-US equities.

Again, clawing back a little bit of that really dollar-driven underperformance of the US year to date. If you look at the year to date returns, it's almost entirely explained by currency now, the difference between the US and non-US. So, that dollar thesis if you will, that the dollar at least won't keep going down and perhaps regain some of its losses is joined by the fact that the fundamentals in the US, the earnings for the US markets, which of course is heavily dominated by technologies continues to be strong. And also within the US, we've seen a few, three in particular very uncertain risks. At least we've come to the point where we've gotten at least a little bit more clarity on those three risks. So, quickly going through them, the tariff war or the trade war, it looks like we're going to wind up around and call it a little over 15% effective tariff rates. We didn't know that a quarter ago where that would all wind up or how much of a true trade war might occur.

So, that's landed on something that we can analyze better, i.e, the impact of 15% plus tariffs on the economy. So, more clarity there. Secondly, on the labor market, we did get the revisions, the big 911,000 annual revision in addition to some of the monthly revisions that revealed as has been noted, a weaker jobs market than previously thought. But at least knowing that gives investors more clarity to price out that risk and especially the Fed knowing that the labor market has considerably weakened or is considerably weaker than they previously thought, of course is allowing them or prompting them maybe more appropriately appropriate term to start to reduce rates and focus more on the full employment side of their mandate than the price stability part of their mandate.

So, that's the positioning within the US. And that also does as mentioned, lead to that slight risk-on positioning. We are underweight fixed income to fund that modest overweight. In addition to that US overweight over non-US real quickly, a few other trades that we have on in the portfolio, our reinsurance or catastrophe bonds, so reassuring against the risk of natural disasters, et cetera. That's been a great performer for us. It's a really nice uncorrelated and diversified risk to add into the portfolio. And then infrastructure whereby in the US, there's a build out both from AI data centers but also reshoring. And then finally, we do have a little bit of a focused allocate overweight to China as they continue to stimulate their economy and the trade war between the US and China is a little bit less or more cordial I suppose you'd say than people maybe thought.

Camilla Sutton:

Dan, that's a great summary. Thank you for that. Ernie, why don't we start to drill down a little bit into trade, particularly between the US and Canada and also US and the rest of the world? What's important to be thinking of? How are the headlines? Have they changed very much over time and particularly when it comes to CUSMA or USMCA, it's coming up for review. How should investors and businesses be thinking about that?

Ernie Tedeschi:

So, great question. So, why don't I start top level just overall for what I see and then I'll drill down into Canada and the US specifically. So, as mentioned, we see an average effective tariff rate right now of about... Increase of about 15% this year. That puts the US tariff rate at the highest since 1934. It's quite a shock to the economy. Now, even when announced tariff policy was much higher back in April, we were very skeptical of the idea that tariffs would be enough to cause a recession in the United States. And tariff policy has actually come down quite a bit, especially now that we're not tariffing China by 125%, but rather by a maximum of 30%. So, that 15% rate translates... I think that we would shave about 40 basis points off of real growth for the United States in 2025. So, if you were at two before now, you'd be at one six.

And look, that's even before we were accounting for the possibility of upside risk from AI, for example. So, you might even be higher than that even with tariffs right now. I will say too that we see fairly clear evidence now that tariffs are raising the level of goods prices in the United States, core goods are probably around 2% higher in price level. They would've predicted based on pre-2025 trends that is meaningful. That is not huge in the grand scheme of all prices, but that is a noticeable effect, especially for consumers. And the key thing to keep in mind is that one hypothesis had been that services prices would ease in the United States to offset that, and we have not seen that yet. Core services, ex-housing in the United States are rowing at 3% roughly thereabouts year-on-year, which is still quite hot for core services. And obviously that category is not tariff-sensitive at all.

When you drill down into the US-Canada relationship. So, the US trade with Canada, our surplus has increased by $2 billion since last July year-over-year, but that's because imports have shrunk by more than exports have shrunk to Canada. So, US imports from Canada have shrunk by more than 10% year-on-year, whereas US exports to Canada have shrunk by 6.1%, so increase in the surplus, but that's because of shrinking overall US trade with Canada overall, which is not surprising. On the CUSMA, USMCA issue specifically, I think the most remarkable thing that we've seen so far is how effective CUSMA has been at blunting the impact of US tariffs on Canada. So, we have a statutory rate of 35% on Canadian imports, 10% on energy and potash. That's the statutory rate that you would expect. When you look at the actual effective rate of all of the tariff revenue that the US is collecting from Canadian imports versus US trade, the effective rate is 3%.

So, a whole order of magnitude lower than the statutory rate. And the reason is because CUSMA, USMCA either exempts a whole lot of Canadian imports that comply with the rules of origin or just adds a whole lot of zero tariff lines that companies are increasingly taking advantage of. More than 90% of Canadian imports into the United States right now are zero tariff under some authority either CUSMA or a special zero tariff line item. So, that's been a surprise to us. We were expecting roughly about 50% of trade with Canada to be tariff-free under USMCA, and it's been almost all trade. And the implication of that is number one, the economic impact on both Canada and the US from US tariffs is obviously much lower. Number two, we're obviously raising a lot less revenue than we thought initially because of these tariffs.

And the last quick thing that I'll mention is I think that the easing of Canadian retaliation on the US other than on steel and aluminum, which is still in place, but getting rid of the retaliation on the other product lines, I think ought to cause economic observers to meaningfully upgrade their outlook for Canada. So, one of the reasons why in our modeling Canada was the worst off of all the trade partners in response to US tariffs was precisely because Canada had had so much retaliation against US tariffs, like the things that are slowing... The domestic tariffs that are slowing down the US outlook, like if Canada is retaliating, that has the same effect on the Canadian economy. Getting rid of that has the opposite effect and firms up the Canadian outlook.

Camilla Sutton:

It's interesting. I mean, Doug, from your perspective here, the Canadian economy has really been more resilient than maybe some of us would've guessed and some of the inflationary pressures that we would've expected haven't really seemed to come through yet. What's kind of surprised you the most in the last several months?

Douglas Porter:

Yeah, partly I would say the resiliency of the Canadian economy is a bit of a surprise, but to me probably the single biggest surprise is the market reaction to the trade war. I mean, if you think back Liberation Day, so-called Liberation Day was almost exactly six months ago today. And at that time, tariffs of this magnitude were seen as absolutely poisonous for the economy. Recall, we almost went through a full on bear market. We even had bond yields backing up. We had the US dollar in serious meltdown for a while, and now we have essentially reverted to almost the same level of tariffs as we had on Liberation Day, excluding the back and forth with China and the market's perfectly okay with that now. And maybe even more surprising is the fact that the TSX is leading the way and is one of the strongest markets in the world.

I can only say that either the market was dead wrong six months ago and was far too bearish or it's wrong now and it's far too bullish and maybe the truth is somewhere in between. In other words, it was overestimating the negative economic impact six months ago and maybe slightly underestimating it now. But to Ernie's point, I think some of it is that the economy has fared a bit better than expected. Arguably it's weathered the storm, at least the initial blast on that front. And basically the next big question is, "Well, what happens to USMCA?" Our department actually has a report coming out next week that looks at three different potential scenarios of where that's going.

And one of the main scenarios, the one that we think is in fact most likely is essentially where we are now, we call it the muddle through scenario, where we end up with a baseline tariff that's less than other countries. Pretty close with the sectoral tariffs in place now, perhaps not quite as onerous on steel and aluminum, but I think that is manageable for the economy and as I said, it's quite possible that it's already suffered the worst hit from the trade war.

Camilla Sutton:

That's going to be a well-read report, Doug. I think a lot of us are trying to really figure that piece out. Dan, let's loop you back in. We've talked a fair bit about markets. We've talked a bit about risk. From your perspective, what is really one of the biggest risks that the market is currently under or overpricing right now?

Dan Phillips:

Yeah. And so, I'll start with the risk that perhaps the markets are underpricing, but before getting into that actually, and this might be a little bit of an answer to Doug's question around why the markets are more comfortable with tariff rates today versus before even despite much change? And I think it's just the certainty that it has provided us. So, markets hate uncertainty, and so even having a number, knowing what the number is, even if it's potentially a negative, will have a negative impact either on the economy or on inflation, at least being able to price that risk makes investors feel a lot more comfortable. I'd say the tariff risk has, in my mind been replaced more so at least in the US by the immigration risk, which is sort of an irony of the labor market situation right now where as we've discussed there, the jobs added number has been quite low and disappointed and revised down at the same, so leading to sort of a subpar jobs market overall.

One could argue at the same time there are some very specific key industries that are noting the lack of labor, importantly labor that would come from south of the border. The illegal immigration, which for right or wrong was really making the US economy go, especially in areas like housing, construction, other area... Farming for that matter too. Housing being one of the important ones though. And so, I think perhaps that risk one ties into the labor market risk overall, but then two is something that the markets are perhaps not fully appreciating at this point. On the flip side though, I think markets are overestimating the risk of valuations. We always talk and hear about, "Oh, markets are priced for perfection," and that we're at all-time highs. Well, if you look and do the research, the one-year return after all-time highs is actually about 2% greater than the one-year market return over all ever periods.

The reality is we hit "all-time highs" all the time. And so, just being at an all-time high oftentimes means the market's on its way to more all-time highs. And so, that's one aspect of it. But then also the valuations, at least over a one-year period are an awful predictor of returns. They're not a good timing tool. Valuations can remain elevated or lower for long periods of time. And I would say as the last part of this answer as to why that risk of valuations and of the markets moved so far this year maybe overestimated is just the number of catalysts that we could see over the next six to 12 months that could continue to push markets higher. And I'll just list off a few of them, which is the Fed is starting to cut rates. We've got a midterm election in the US next year and the administration inevitably will do whatever it can to keep the economy moving in the right direction ahead of that.

The tax bill that was passed back on the 4th of July has some really interesting provisions for stimulating economic growth, including the R&D expensing, et cetera. We're finally getting to sort of the deregulation part of the Trump administration agenda after going through some of the less market positive parts. And last but not least is AI and the way that it could be implemented helping both those who produce the AI and what runs AI underneath, but then also the other companies that can start to put it to work.

Camilla Sutton:

Well, 30 minutes comes and goes pretty quickly. But before we close out, why don't we just finish off with each one of you, if you could each sum up one closing message you'd really like to leave investors with and why don't we go Doug, Ernie, and then Dan?

Douglas Porter:

And thanks, Camilla. I guess the message I would leave is something I think I told you, Camilla, when we last had one of these, at least I was on with you after the presidential election last year, and that is for investors and businesses to realize that policymakers can influence the economy, but they don't drive it. At the end of the day, I think I said at the time, it's 160 million Americans and 22 million Canadians getting up every day and going to work that ultimately drives the economy. And while it makes for great headlines, all this uncertainty and this back and forth on things like trade and tax policy, ultimately that's not what is going to drive the economy. And I think the resiliency of the Canadian and US economy through all this uncertainty that we've lived through this year really drives home that point, not to mention how the financial markets have fared through this.

And I think despite the lingering uncertainty in today's news of a shutdown, we'd still be looking at modest growth in 2026. It's not going to be a banner year for either economy, but we are looking at something just a wee bit short of 2% for both. And Dan went through a lot of the reasons to be still relatively bullish, particularly on the US. We are still left with the uncertainty on the USMCA for Canada, unfortunately, and that's why it wouldn't be a wee bit more bullish in Canada. And helping support that is the fact that inflation has not flared in a major way due to the trade war and it sets the stage for somewhat lower rates in both Canada and the US. And I'll just leave it at that. Thank you.

Camilla Sutton:

Ernie.

Ernie Tedeschi:

Yeah, I would say my main message would be that tariffs are no longer pop, pop, pop of mind anymore unless you are in a business or a portfolio that specifically focuses on tariff-sensitive industries. Tariff risk as both Doug and Dan mentioned, is clearly lower than it was back in April and May, but that does not mean that tariff risk is zero. I mean, we just saw a set of tariff announcements from the president the other week that had us all scrambling. There is still risk around a Supreme Court decision this year or next year, both downside and upside risk in terms of tariffs because of the administration response. So, that needs to be kept in mind. And certainly the tariff impact on the economy is not zero. But in terms of other risks, both upside and downside to both economies, I think that we have clearly gotten to a point where there are a broader set of considerations. And Dan and Doug very nicely laid out some very important ones.

So, on the upside, investment, AI risk, we didn't even get to reshoring or offshoring risk and how that might benefit Canada in North America. And then on the downside, definitely the labor market in the United States and persistent and tenacious inflation as a possibility. So, again, tariffs don't fall off the considerations by any means, but there's a slew of other things to pay attention to.

Camilla Sutton:

Dan, a closing minute here.

Dan Phillips:

Yeah, I think I'll use this closing thought to be a little bit more specific on current events, which is the government shutdown we've talked about it a little bit, but my closing thought is to pay little mind to the government shutdown. There are some inconveniences that will cause the data, specifically the jobs number on Friday and probably will be delayed as Ernie mentioned. But historically speaking, markets don't even blink at government shutdowns possibly, and partially because they're so used to them. These happen all the time, but also because they generally do not impact the economic fundamentals. Those that are sitting at home instead of being at work get full back pay every time, I believe, if not nearly every time, but I do think it's every time. And so, no one's out of any money. And usually these things come to a conclusion within, I think on average seven or eight days. So, the markets won't blink on this. It's not a real concern for investors unless we start to see it really extend into a bigger standoff than at present.

Camilla Sutton:

Ernie, Doug, Dan, thank you all very much for sharing your views and outlooks. It's really appreciated. To our audience members, thank you for joining us here at BMO, we're committed to helping our clients even in the most complex environments, and so with our extensive cross-border resources, expertise, and content, hopefully we do that well. If you do have questions, your BMO relationship manager is more than happy to help you. We're really glad you were able to join us today. Thank you.

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