By Douglas Porter

January 30, 2026

And here we thought we were going to be talking about gold again this week. The yellow metal certainly did its part to stay in the limelight, blitzing to a fresh record high of above $5,500/oz—more than doubling from a year ago—before promptly reversing almost 14%, and ending the week back down below $5,000.

Those swings looked positively calm beside the whipsaw action in silver and natural gas, not to mention the important 5% weekly rise in crude oil on Iran tensions.

But the high drama across commodity markets gave way to Friday’s news that Kevin Warsh was tapped by President Trump to become the 17th Chair of the Federal Reserve. Warsh was widely seen as a frontrunner for the post for months now, so the choice was far from surprising.

Despite the reams of analysis unleashed on the implications of the Warsh pick,  everyone is well aware of the context of the choice. Following a year-long pressure campaign on the Fed to reduce interest rates, there can be no doubt of the incoming Chair’s leanings.

The wrinkle here is that Warsh has been quite critical of QE in the past, and he may reasonably push for a trade-off of a faster reduction in the Fed’s balance sheet for lower short-term rates.

On balance, the view is that among the uber-doves that were seen as the final four Fed candidates, Warsh may have been among the least dovish… in Washington’s very own version of Succession.

Even so, bond market moves were initially muted. For example, 10-year Treasury yields now sit a mere 1 bp higher than a week ago at just under 4.25%, while 2-years dipped just over 5 bps to below 3.55%, a moderate steepening move.

And, true, the U.S. dollar did strengthen on Friday, but it still ended the week down against most currencies after hitting a four-year low on Wednesday. The bounce in the dollar no doubt weighed on precious metals but can hardly be seen as the driving force behind the late-week deep correction (which took silver down roughly 30% in a day).

That didn’t stop some analysts from making just that claim, suggesting that the “Dollar debasement trade is on pause”. Suffice it to say, we continue to expect the dollar to grind lower in the year ahead. Meantime, stocks pulled back on Friday, but only after the S&P 500 brushed the 7,000 mark, and still ended about flat for the week as Q4 earnings were broadly supportive.

Assuming the nomination succeeds, Warsh will be inheriting an economy with a fascinating mix of solid GDP growth on the surface, but with sluggish hiring and cautious households churning below.

For example, the Conference Board reported this week that consumer confidence fell in January to its lowest ebb since 2014. This survey was previously the stronger of the two majors (along with the U of Michigan), making its deep drop even more notable. Still, Chair Powell downplayed the dark mood after holding rates steady on Wednesday, noting that spending remains solid and seems less related to sentiment.

There is little debate that confidence surveys have taken on political undertones and need to be filtered through that lens. But there is also little debate that many are struggling amid a softer job market and lingering inflation (see December’s PPI spike).

The main focus next week for economy watchers—assuming a partial government shutdown is averted/resolved—will be January’s employment report. The low-fire/low-hire theme is expected to dominate, with payrolls likely to grow by just over 50k again, holding the jobless rate steady at 4.4%. In this environment, we have pushed back our call for when the Fed will resume cutting rates until June (i.e., after Powell has left the Chair), although we continue to expect three cuts this year (while markets have priced in slightly more than two).

Canada’s economy is also a mixed bag, with cautious consumers, a soft job market, but without the solid GDP. The marquee economic release revealed that output was flat in November and likely up only 0.1% in December, thus pointing to a possible small contraction in Q4.

This news arrived just days after the Bank of Canada kept rates unchanged for a second consecutive meeting, even as it estimated no growth in Q4 and projected that inflation will be “close to 2%” this year. Given that rates are at the very low end of the estimated neutral range at 2.25%, it will be a tall hurdle to get the Bank off the sidelines this year.

But with growth stuttering and trade uncertainty still dialled up to 11, we believe that rate cuts are a much, much higher probability than rate hikes this year.

After a near-continuous upward rise from last April’s lows, the TSX finally broke stride this week. While it did reach a record high on Wednesday, the swift reversal in gold, as well as a few specific company issues, prompted a sharp 4% pullback.

The broader issue for the market, and certainly for the economy, is the ongoing frictions on the trade front, which have only gathered momentum recently. Serving as a reminder, export volumes fell 3.7% in November, widening the merchandise trade deficit to $2.2 billion.

Gold flows have been heavily swaying the data in the past year, with precious metals rising to a massive 13% share of exports the prior month before retreating. Extracting these metals from the data (both exports and imports) would leave Canada with a trade deficit of around $7 billion in recent months compared with a pre-pandemic norm of around $4 billion.

So, while the run in gold has provided a nice boost to exports (and previously for the TSX), it is masking a much less friendly picture beneath the surface.

Now we really know that Canadian and U.S. relations are icy. President Trump threatened a 100% tariff on Canadian goods if the country “makes a deal with China”, and then warned that all airplanes made in Canada could be hit with a 50% tariff. (Question, would that be before or after the 100%?)

Piling onto the first thread, the President also suggested on Thursday night that “it’s even more dangerous, I think, for Canada to get into business with China,” and “Canada’s not doing well. They’re doing very poorly and you can’t look at China as the answer.” But the coup de grace: “The first thing they’re gonna do (China) is say you’re not allowed to play ice hockey anymore. That’s not good. Canada’s not gonna like that.”

Well this is quite obviously an empty threat to much of the country. No more hockey could be viewed as an act of mercy the way this NHL season is going in cities like Toronto, Winnipeg, Vancouver…

Policy Contributing Writer Douglas Porter is Chief Economist for BMO.