Federal Reserve Chair Kevin Warsh testifies before the House Financial Services Committee Tuesday and the Senate Banking Committee Wednesday, delivering his first semiannual Monetary Policy Report to Congress since taking the chair in June. The Bank of Canada announces its own rate decision Wednesday morning, hours before Warsh appears before the Senate. Neither event is expected to change a headline rate this week. Together, they confirm that the two central banks are no longer moving in the same direction.
What the Fed's Internal Vote Actually Showed
Minutes from the June 16 to 17 FOMC meeting, the first chaired by Warsh, showed the committee holding the federal funds rate at 3.50% to 3.75%, unanimously, while a clear internal majority argued for tightening. Nine of twelve officials favoured higher rates before year end, and six of those pencilled in two separate quarter point hikes rather than one. The minutes also marked the first time the committee incorporated artificial intelligence infrastructure investment into its inflation discussion, flagging it as a demand side pressure alongside the more familiar energy channel from the Middle East conflict.
The Fed's preferred inflation gauge, core PCE, ran at 3.4% year over year as of the most recent reading, nearly double the 2% target. Markets are pricing roughly a 60% probability of a rate increase at the September meeting. Warsh's first Monetary Policy Report, released ahead of this week's testimony, gave unusual prominence to the M2 money supply, a monetarist framework that has been absent from Fed communication for decades and signals a deliberate shift in how this Fed chair intends to explain policy.
The Bank of Canada Has Not Moved Since October
The Bank of Canada's overnight rate has sat at 2.25% since an October 29, 2025 cut, through holds on January 28, March 18, April 29, and June 10. Wednesday's decision is widely expected to be a sixth consecutive hold. Governor Tiff Macklem has described the setting as a dilemma: soft domestic growth, with first quarter GDP contracting 0.1%, sits against elevated near term inflation running near 3%, driven by oil prices that remain roughly ten dollars above the Bank's April assumptions.
That dilemma keeps the Bank of Canada genuinely two sided, debating whether the next move is a cut or a hike, not leaning toward tightening the way nine of twelve FOMC voters just did. The weekend's fresh escalation in the Strait of Hormuz, with Brent crude back above 79 dollars, reintroduces exactly the inflation risk that had been fading from the Bank's calculus heading into this week, without yet being enough to change Wednesday's expected outcome.
Where This Reaches a Five Year Mortgage
The transmission that matters for Canadian households does not require the Bank of Canada to move at all. Fixed mortgage rates track the bond market, not the overnight rate directly, and the five year Government of Canada yield responds to global capital flows as much as to domestic policy. The US 10 year Treasury yield has climbed toward 4.59%, near a two month high, while Canada's 10 year sits at 3.55%, its highest level since May. As the spread between them widens on the back of the Fed's hawkish internal tilt, Canadian yields get pulled higher even if the Bank of Canada holds every meeting through the rest of the year.
That matters most for the wave of Canadian mortgages renewing over 2026 and into 2027, originated when five year fixed rates sat meaningfully lower. A borrower renewing this fall faces a rate environment shaped less by what the Bank of Canada announces Wednesday than by what nine Federal Reserve officials just told markets they want to do next.
The distribution below reflects each FOMC participant's individual rate path preference from the June meeting, set against the Bank of Canada's unchanged policy setting over the same period.
Each dot represents one FOMC participant's individually stated preference for additional 2026 rate moves, as reflected in the June meeting minutes. The Bank of Canada reference reflects its policy rate setting over the same period, unchanged since October 2025.