Fed Rate Hike Odds Hit 87%: What It Means in Canada
Markets now price a roughly 87% chance that the US Federal Reserve raises its target range by 25 basis points on Wednesday, September 16, per CME’s FedWatch tool as reported by Yahoo Finance on Friday. Fed rate hike odds have moved fast. That same probability was 72% a day earlier and about 50% a week ago. If the increase arrives, it would be the Fed’s first since July 2023 and would unwind the cut it delivered in December.
Data as of about 2:30 p.m. ET Friday, September 11, 2026.
An 87% probability is not a decision. It is market pricing, it has already moved twice this week, and the committee has not voted yet. What follows is the mechanics on both sides of Wednesday, and what each one touches in Canada.
What is actually on the table
The Fed’s current target range is 3.50%–3.75%, set on December 11, 2025. That was the third of three 25 basis point cuts last year, following September 18 (to 4.00%–4.25%) and October 30 (to 3.75%–4.00%), according to the Fed’s own open market operations record.
A 25 basis point hike would take the range back to 3.75%–4.00%, exactly reversing December’s move. The last time the Fed increased rates at all was July 27, 2023, a 25 basis point step to 5.25%–5.50%. So Wednesday would be the first increase in more than three years.
The decision lands at 2:00 p.m. ET on Wednesday, September 16, at the end of a two-day meeting, and it comes with updated economic projections. The projections matter as much as the rate itself: they are where markets look to judge whether a single move is a one-off adjustment or the opening of a sequence. Nobody knows what the dots will say until 2:00 p.m. ET Wednesday.
Why the odds moved this week
Friday’s US inflation release did the work. August CPI came in at +0.4% month over month and +3.4% year over year on the headline measure, per the Bureau of Labor Statistics release published at 8:30 a.m. ET. Core CPI rose 0.3% on the month, hotter than the +0.2% consensus reported by Yahoo Finance, and 2.4% year over year.
Energy is the line that stands out. The energy index rose 2.1% on the month and 16.3% over the year, with gasoline up 3.9% on the month, “accounting for over one third of the monthly all items increase,” in the BLS’s wording.
That energy print follows two supply shocks in the same week: attacks on Saudi facilities on Tuesday, and strikes involving the US and Iran around the Strait of Hormuz on Wednesday. WTI crude closed at $103.89 USD on Thursday. The chain worth drawing is a modest one. Oil shocks fed energy inflation, and firmer energy inflation hardened hike expectations. WTI has since come back to $99.89 USD, down 2.53% on Friday afternoon.
The gap between the Fed and the Bank of Canada
The Bank of Canada’s overnight rate is 2.25%, unchanged since October 30, 2025, when it cut from 2.50%. Both central banks eased on that same day. The Fed then cut once more in December. The BoC has not moved since.
Run the arithmetic on where that leaves the two policy rates. The bottom of the Fed’s range sits 1.25 points above the BoC’s overnight rate and the top sits 1.50 points above it. A 25 basis point hike shifts that to between 1.50 and 1.75 points.
The timing is the part Canadian investors should hold onto. The BoC’s next scheduled decision, with a Monetary Policy Report attached, is October 28, 2026, per the Bank of Canada’s published 2026 schedule. Whatever the Fed does on Wednesday, Canada’s policy rate does not respond for roughly six weeks. Whatever gap results on Wednesday afternoon is the gap Canada lives with until late October.
What a wider gap touches in Canada
The Canadian dollar. A wider US and Canada rate gap tends to pressure the loonie through the yield differential. CAD trades at $0.7213 USD, down 0.42% on Friday afternoon. For an investor, that cuts two ways at once: US-dollar holdings are worth more in Canadian dollar terms when CAD weakens, while imported costs rise.
Mortgages. This is where the split between the two central banks becomes concrete. Canadian fixed mortgage rates track Government of Canada bond yields, which take direction from US Treasuries, so a tightening Fed puts pressure on that side. Variable rates ride the Bank of Canada’s overnight rate, which cannot move before October 28 at the earliest. Two rates in the same country, driven by two different clocks. If you are weighing one against the other right now, that mechanical difference is the whole question, and we worked through it this morning in Fixed vs Variable Mortgage in Canada: How to Choose.
Stocks. A rate decision in Washington moves TSX listings because rate expectations reprice equities directly, and financials most visibly of all. Our guide to what moves a stock price works through an example of exactly that: Canadian bank stocks repricing on shifting rate expectations during a session with no Canadian news of their own.
Worth noting that the tape is not fighting the odds. As hike pricing climbed from about 50% to 87% across the week, Friday afternoon had the S&P 500 up 1.00%, the NASDAQ up 1.15% and the S&P/TSX Composite up 0.42% at 35,656.39. That is one session, described rather than explained, and we covered the Canadian side of it in our TSX market update for September 11. One afternoon of green is not evidence about Wednesday.
What a hold would look like
The scenario the pricing assigns less weight to still deserves its mechanics. If the FOMC leaves rates alone, the target range stays at 3.50%–3.75%, the spread over the Bank of Canada stays between 1.25 and 1.50 points, and none of the additional pressure described above gets applied. December’s cut stands, and the Fed’s last increase remains July 2023.
Either way, the projections publish at 2:00 p.m. ET. A hold with projections pointing to tightening and a hike with projections pointing nowhere further are very different outcomes, and both are available on Wednesday. The rate line is the headline. The path is the information.
Two dates before anything else
Monday, September 14, 8:30 a.m. ET. Statistics Canada publishes Canada’s August CPI. The same oil move that lifted the US energy index flows into Canada’s print, and it arrives two days before the Fed decides. It also tells you what the Bank of Canada will be looking at when its own turn comes in late October.
Wednesday, September 16, 2:00 p.m. ET. The Fed decision, plus the updated projections.
Between now and then, market pricing will keep moving, as it did twice this week. The dates are fixed. The odds are not.
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