The Bank of Canada is not expected to change its benchmark interest rate on Wednesday morning. But that doesn't mean the central bank thinks the economy is humming along the way it normally would.

Trading in short-term investments known as overnight index swaps suggest there's little chance — a little less than one in seven chance, to be precise — that the central bank will raise its key lending rate on Wednesday, ratcheting it up from its current level of 1.25 per cent.

Eight times a year, the bank meets and decides where to set its overnight lending rate, which filters down into the broader economy by affecting the rates that savers and borrowers get from their retail banks on things like mortgages and savings accounts.

When it raised its rate in January, the bank listed a number of reasons for optimism, including better-than-expected consumer spending, a booming job market, strengthening business investment and an expanding global economy.

Since then, however, the forecast has turned a little gloomier. So it will be interesting to see if and how the bank hints that the picture has changed a little.

In early February, Statistics Canada data showed that the job market lost 88,000 positions in January. And while economists often caution to not put too much stock in one month worth of data in the always chaotic job numbers, it certainly wasn't a bright neon sign that the central bank needed to pump the brakes a little on an overheated economy.

Next came the final GDP numbers for 2017, which showed the economy grew at a 1.6 per cent annual pace in the last six months of 2018 — less than half the pace of growth seen in the first half. While the economy grew by three per cent in 2017 as a whole, last month's federal budget forecast that pace to slow to 2.2 per cent this year and 1.6 in 2019. That's in line with what the central bank was expecting in January.

All things being equal, a central bank hikes its rates when inflation is rising too fast in a quickly growing economy. It cuts when it wants to stimulate growth.

So just as with the jobs figure, GDP growth that's slowing down and expected to keep doing so is not exactly a green light to hike. So the statement that accompanies the rate decision will be interesting to parse for signs of whether the bank thinks things are getting better or worse.

Many central bank watchers are leaning towards the latter. As Scotiabank economist Derek Holt put it in a recent note, "there are some rather compelling reasons to pause the hike cycle," even beyond those listed above.

Wobbly housing

Strictly speaking, the central bank's mandate is to manage inflation, not worry about house prices and the debt loads associated with them.

But the housing market is starting to play an outsized role in Canada's economy, so signs of trouble have the potential to reverberate through it. Home sales plummeted 15 per cent in January compared to the same month a year earlier, Macquarie analyst David Doyle noted in a research report this week, and early signs for February show the slowdown may be picking up speed.

By his calculations, if the slowdown in the housing market persists, it could cost the economy half a percentage point in terms of growth this quarter.

New rules designed to tighten the mortgage market came into place in January, and they seem to be having their desired effect of reining in speculators from getting in over their heads.

But their full impact has yet to be calculated, so it's unlikely the Bank of Canada will want to pour gasoline on to the fire of worry over house prices with higher rates on monster mortgages. As Holt put it, "The Bank of Canada will be speaking with banks through senior levels and desks to evaluate mortgage pre-approvals into the key season and won't have enough material information in this regard until at least the April meeting," so that's another reason to expect it to stay on the sidelines on Wednesday.

Tariff talk

As if those concerns weren't enough, the leader of the free world is ramping up for a trade war, one in which Canada is bound to take at least some collateral damage.

U.S. President Donald Trump surprised just about everyone last week with his pronouncement that he wants to slap a tariff of 25 per cent on imported steel, and 10 per cent on aluminum, a move which could hit Canadian producers hard.

While it's believe his proclamation was targeted at Chinese suppliers, Canada actually supplies more than a sixth of all the steel the U.S. imports, and more than 40 per cent of its aluminum.

Canada exported $15 billion of the metals to the U.S. last year, so unless Canada is exempt — and there's little indication that will happen — some modest pullback from that seems reasonable to expect.

If you assume a modest decline of 15 per cent from that export total, Doyle calculates that works out to a 0.1 per cent hit to Canada's GDP.

So take half a per cent from housing, and another tenth due to tariffs, add it all up and all of a sudden you've got more than half a per cent knocked off the entire economy's output — a figure that the bank was expecting would only come in at 2.2 per cent before all of this. With math like that, it's not hard to see why the case to raise rates on Wednesday quickly runs out of steam.

Doyle is among those who's expecting the bank to hike twice this year, once in July and then maybe again in October, but the case for ramping up is a lot weaker than it used to be.

As he put it: "Housing headwinds have intensified, structural challenges have become more severe, and exports and business investment continue to struggle. A difficult NAFTA renegotiation and protectionist U.S. trade policy are making matters worse."