The Bank of Canada has not changed its policy rate since before 2026 began. The overnight rate target has held at 2.25 percent through seven consecutive decisions, most recently on September 2, and the next opportunity to move is not until October 28. The Federal Reserve took the opposite path. On September 16 it raised its target range to 3.75 to 4.00 percent, its first increase since 2023, on a unanimous 12 to 0 vote, according to the Federal Open Market Committee statement.
Seven Holds Look Different Next to a Hike
A rate that has not moved reads as caution when the alternative is a cut. It reads as something closer to complacency next to a hike. The Bank of Canada has held at 2.25 percent through January, March, April, June, July and September, each time citing conditions evolving broadly as forecast, even as officials flagged in the September statement that upside risks to inflation have increased. The Federal Reserve spent the same six meetings holding near 3.50 percent before moving in September, and Chair Kevin Warsh told reporters afterward that inflation remains too high, a materially different read on a broadly similar set of facts.
The Bank of Canada has not moved its policy rate all year, holding at 2.25 percent through seven straight decisions, while the Federal Reserve held near 3.50 percent before raising rates in September for the first time since 2023.
The Bank of Canada held at 2.25 percent through seven consecutive decisions in 2026 while the Federal Reserve stayed near 3.50 percent before raising to a 3.75 to 4.00 percent range in September, widening the policy gap to 150 basis points. Source: Bank of Canada, Federal Reserve.
What Is Actually Driving the Divergence
Canada and the United States are not responding to the same inflation. Statistics Canada reported headline CPI holding at 3.0 percent in August, matching July, with gasoline prices up 22.8 percent year over year on the sustained Middle East oil premium and core inflation excluding gasoline ticking up to 2.4 percent from 2.2 percent. That leaves the Bank of Canada watching an inflation print pushed higher mostly by an external oil shock, a case for looking through the number rather than responding to it. The Federal Reserve is responding to inflation Chair Warsh has characterized as broader and stickier, alongside a labour market that has not signalled the same slack Canadian officials have been managing since 2024.
The Growth Data Removes an Excuse to Cut
Canadian GDP grew at a 3.3 percent annualized pace in the second quarter, and Statistics Canada revised first quarter growth up from a flat reading to a modest expansion, closing off the recession discussion that had built through the spring. Exports rose 3.6 percent, the largest gain since early 2023, driven by a rebound in vehicle production. That data makes the case for a near term cut harder to build inside the Bank of Canada, even with the rate gap against the Fed now at 150 basis points and the Canadian dollar trading near a six week low against the US dollar as a result.