The Federal Reserve held its policy rate at 3.50 to 3.75 percent on June 17, exactly as markets expected heading into the meeting. The number that moved markets was not the decision itself. It was the dot plot, the quarterly summary of each official's own projection for where the rate should sit by year end, and it showed a committee that has shifted meaningfully since March.
Of the eighteen officials who submitted a projection, nine now see at least one rate increase before the end of 2026. One projects a cumulative increase of 75 basis points. Five project 50 basis points. Three project 25 basis points. Eight see no change at all, and one still expects a 25 basis point cut. The resulting median dot implies a year end rate of 3.8 percent, up from the 3.4 percent the same committee projected in March, when not a single official had pencilled in a hike.
What Changed Since March
The mechanism is straightforward even if the politics around it are not. Newly confirmed Chair Kevin Warsh, who took over from Jerome Powell in May, ran his first meeting against a backdrop of a stronger than expected May jobs report and an energy price shock that pushed inflation to its highest level in three years. Warsh did not submit a dot of his own, citing his long standing objection to the exercise, but his press conference language was read by economists as unmistakably hawkish. He told reporters the Fed had missed its inflation target for five years and intended to fix that, language that Deutsche Bank's Matthew Luzzetti said raised the visible risk of a hike rather than a cut.
Equity markets registered the shift immediately. The Nasdaq 100 fell roughly 1.3 percent on the day of the decision, and bond yields rose as traders repriced the odds of further easing lower. The transmission to Canada runs through two channels at once: a stronger US dollar that pressures the Canadian dollar directly, and a higher US rate path that pulls global short term yields, including Government of Canada Treasury bill yields, along with it.
The Bank of Canada Is Reading a Different Economy
The Bank of Canada held its own policy rate at 2.25 percent on June 10, the fifth consecutive hold and a decision economists had widely expected. Governor Tiff Macklem's tone, however, leaned more cautious than hawkish. He acknowledged the Canadian economy contracted for a second straight quarter in the opening three months of the year, driven in part by US trade policy uncertainty and the now resolving war in Iran, while stopping short of calling it a recession. Core inflation, Macklem noted, has cooled in recent months even as the headline rate has been pushed up by energy costs, a distinction he said the Bank is watching closely.
That distinction is the whole story for the next decision. Bond markets currently price roughly a 7 percent probability of a Bank of Canada rate increase on July 15, rising to about 30 percent by the September 2 meeting, a pricing pattern that reflects genuine two way risk rather than a settled view. The CUSMA joint review deadline falls this same month, and an outcome that ratchets tariff levels higher or extends trade uncertainty into the back half of the year would weigh further on a Canadian economy that Macklem has already flagged as softer than expected.
Placed on the same scale, the Fed's eighteen projections show a committee with a meaningfully higher centre of gravity than the unanimous, no hike consensus it held in March, while the Bank of Canada's own rate has not moved in five consecutive decisions.
Each dot represents one of eighteen Federal Open Market Committee participants' year end 2026 rate projection, expressed as the midpoint of the implied target range. Chair Warsh did not submit a projection. Source: Federal Reserve Summary of Economic Projections, June 17, 2026.
What This Means for the Loonie and for Renewals
The Canadian dollar traded near 0.7065 against the US dollar this week, within sight of the 52 week low of 0.7053 set Friday, as the widening gap between the two central banks' rate paths weighed on the currency alongside falling oil prices. A weaker loonie raises the cost of imported goods, a transmission channel the Bank of Canada will be watching against its own inflation mandate even as it holds its policy rate steady.
For now, the practical read for Canadian households is continuity rather than change. The Bank of Canada's rate, and therefore variable mortgage and home equity line of credit pricing, remains at 2.25 percent with the next scheduled update July 15. The risk worth watching is not a Canadian rate increase next month. It is whether US policy continues to pull global yields higher through the summer, narrowing the room the Bank of Canada has to cut if the second quarter contraction Macklem flagged turns out to be the start of a pattern rather than a one quarter dip.