The Bank of Canada cut its key interest rate by a quarter-percentage-point on Wednesday and warned of an impending economic downturn as the trade war with the United States rattles consumer and business confidence.

The widely expected move lowers the benchmark policy rate to 2.75 per cent. This is the bank’s seventh consecutive cut since it began easing monetary policy last summer as pandemic-era inflation faded.

“We ended 2024 on a solid economic footing. But we’re facing a new crisis,” Governor Tiff Macklem said in a press conference opening statement, according to the prepared text. “Depending on the extent and duration of new US tariffs, the economic impact could be severe. The uncertainty alone is already causing harm.”

Mr. Macklem said the bank lowered interest rates to help cushion the impact of trade volatility. However, he said the bank would “proceed carefully with any further changes to our policy rate” given the challenges of balancing the downside risk to economic activity with the upside risk to inflation caused by tariffs.

Canada’s trade-dependent economy is facing a major shock with U.S. President Donald Trump threatening decades of North American economic integration. Since returning to the White House in January, Mr. Trump has imposed tariffs on most Canadian goods, partially lifted them, then threatened more.