OTTAWA (Dow Jones) -- The Bank of Canada held its benchmark interest rate steady Wednesday and said officials were sticking with their outlook for moderate growth even though recent economic data point to signs of upward momentum.

The central bank left its target for the overnight rate unchanged at 2.25%, adding that policymakers believe it sits at an appropriate level to keep total inflation close to 2% while offering some stimulus for an economy squeezed by U.S. tariffs. All 13 economists surveyed last week by The Wall Street Journal predicted a hold after a quarter-point cut in October.

The decision likely marks the start of a prolonged pause in Canadian rate policy, following aggressive steps over a roughly 16-month period to roll back interest-rate hikes meant to contain historically high inflation. Financial markets have started to price in the possibility of Bank of Canada rate increases in the second half of next year -- fueled by three straight months of solid job growth, upward revisions of historical data covering gross domestic product and surprisingly strong growth in the third quarter.

The Canadian dollar has appreciated and Canadian government bond yields have moved higher, as the Bank of Canada moves to the sidelines whereas the Federal Reserve is expected to reduce rates this week and in the new year. Some economists said this development might pose an obstacle for the Bank of Canada, which is hoping to keep its financial conditions somewhat accommodative through this tariff-fueled restructuring.

Gov. Tiff Macklem said annualized third-quarter growth of 2.6% was much stronger than the 0.5% expansion the central bank had predicted. He said the third-quarter data were skewed by volatility in trade data, notably a drop in imports, adding that domestic demand was flat. Trade data for the third quarter were also incomplete, due to the U.S. government shutdown.

Macklem said he expects weak growth in the fourth quarter, and is comfortable with the bank's current forecast that the economy increases by a tepid 1.1% in 2026.

"While information since the last decision has affected the near-term dynamics of GDP growth, it has not changed our view that GDP will expand at a moderate pace in 2026 and inflation will remain close to target," Macklem said. "The volatility we're seeing in trade and quarterly GDP make it more difficult to assess the underlying momentum of the economy."

Some economists still believe one or two rate cuts are possible in 2026. They cite trade-policy risks that have prompted businesses to scale back or postpone investment decisions, and an unemployment rate that remains elevated despite job gains over the past three months. Most economists surveyed by the Journal believe interest rates will remain unchanged through 2026.

"The labor market is showing some signs of improvement," Macklem said. Employment levels at trade-exposed sectors have stabilized after sizable job losses earlier in 2025, while job growth has picked up in the services side of the economy. "Looking ahead, however, we're seeing muted hiring intentions across the economy," Macklem said.

The data revisions dating back to 2022 indicate the level of real, or inflation-adjusted, GDP was 1.4 percentage points higher at the end of 2024 than initially forecast. Macklem said those revisions help explain some of the economy's resilience through 2025 amid the tariff squeeze.

Some economists said the revisions indicate there is less spare capacity, or slack, in the economy than previously believed. Macklem said he expects economic slack to offset upward price pressures from U.S. trade policy, and keep inflation close to 2%. The central bank's task is to set rate policy to achieve and maintain 2% inflation.