(Bloomberg) — The Bank of Canada is likely to hold interest rates steady on Wednesday as policymakers consider whether a slowing economy means it’s time to end its historic campaign to tighten policy.

Economists and investors expect Governor Tiff Macklem and his officials to keep the benchmark overnight rate unchanged at 5%. A pause would mark only the third time in 13 meetings that the central bank hasn’t raised borrowing costs. But most analysts think the bank is done hiking.  

Macklem’s challenge will be to credibly threaten that more rate increases are possible, even in the face of a swiftly deteriorating economy. Policymakers will probably say they’re making progress on inflation without declaring victory.

“I’m sure they’re still conflicted,” said Dawn Desjardins, chief economist with Deloitte Canada. “I don’t think they want to be talking too aggressively like this is a fait accompli. They’re going to want to keep the idea that things look like they’re moving in the right direction.”

Failing to maintain a hawkish bias risks a repeat of January, when Macklem became the first Group of Seven central banker to declare a conditional pause. Markets quickly priced in future rate cuts and Canada’s housing market rebounded as financial conditions loosened.

Since resuming hiking in June and July, there’s ample evidence the central bank has done enough to cool excess demand and restore price stability.

Canada’s economy contracted in the second quarter, far below the bank’s estimate for a 1.5% annualized expansion. Growth in household expenditures hasn’t been this meager in two years, slowing to a 0.2% annualized pace between April and June.

The labor market is loosening — job vacancies are falling and the unemployment rate continues to tick up — and the housing market has slowed.

And while most economists still expect a soft landing, questions are mounting about whether the central bank’s June and July rate hikes have tilted the risks toward a recession.

That’s likely to be top of mind for the six members of the bank’s governing council as they transition the debate to how long they need to hold, instead of how restrictive they should go with policy.

Canada’s highly indebted households have likely burned through most of the excess savings they accumulated during the pandemic. For homebuyers or borrowers, there are few places to turn for relief. Five-year yields have risen around 95 basis points since late January, a substantial dent in purchasing power for mortgage holders renewing at fixed rates. Canadians with variable-rate mortgages are already feeling squeezed.

That pinch on consumers — felt hardest among younger and new Canadians in more precarious financial situations — has also caught the ire of lawmakers at both ends of the political spectrum. British Columbia Premier David Eby and Ontario Premier Doug Ford each penned letters to Macklem urging an end to rate hikes, joining a growing chorus of others.

Still, the central bank will say there’s more work to be done, and it could surprise markets with a hike — price pressures are far from its 2% target. Headline inflation accelerated to 3.3% in July, and officials often mention the difficulty of the “last mile” of restoring price stability. 

Central banks around the world are struggling to locate terminal — their end point for interest rate settings in the current cycle. The Bank of Canada will be paying attention to the Federal Reserve in the US, where rates are expected to plateau at around 5.5%. 

Historically, the path of borrowing costs in the two countries moves together. Though most economists agree policy can diverge by as much as 75 to 100 basis points, resulting currency changes are important considerations for inflation risks, especially when rate settings move in different directions. 

The shift to rate cuts in Canada is still a “long way down the line,” Douglas Porter, chief economist at the Bank of Montreal, said in a report to investors last week. Economists surveyed by Bloomberg expect the central bank will start cutting in April. Markets are more sanguine — traders in overnight swaps aren’t fully pricing easing until the fall of 2024.