Fed Hike Bets Meet a Bank of Canada Hold
A Fed rate hike is now a live argument in the United States, while the Bank of Canada’s policy rate has not moved since October 2025 and all 35 economists in a Reuters poll published August 28 expect it to stay put on Wednesday. The next move now points up on both sides of the border. What separates the two central banks is not direction. It is timing and urgency. The American version of the argument is about this month. Canada’s is about next year.
The arithmetic first, as of September 1, 2026. The Fed’s target range is 3.50% to 3.75%. The Bank of Canada’s policy interest rate is 2.25%, unchanged since October 30, 2025, when the last move was a cut from 2.50%. That leaves the US sitting 1.25 to 1.50 percentage points above Canada. We use the range rather than a midpoint because the range is what the Fed actually publishes.
What Warsh said, and what he did not say
On Friday, August 28, Federal Reserve Chair Kevin Warsh delivered a speech called “In Our Time” at the Federal Reserve Bank of Kansas City’s symposium in Jackson Hole, Wyoming. Press reporting since then describes markets moving sharply toward pricing a September increase.
Here is the part most of the coverage is skipping. The speech contains no statement about raising rates and no reference to the September meeting. What it contains is framing.
On inflation: “Each of these broad inflation measures has fallen significantly from their 2022 heights. But progress over the past two years has been modest.”
On financial conditions: “Certain sectors—like housing and agriculture—are showing strains. But, on balance, I would be hard pressed to describe broad financial conditions as restrictive.”
On priorities: “So the Fed’s predominant focus right now should be on prices.”
And on the bar for standing still: “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”
Warsh described his commitment as being to “a discipline, not to a decision”, and referred to the FOMC’s “joint readiness to act as circumstances might require”.
You can see why the reaction was what it was. But an inference is not a commitment. Warsh did not say he would raise rates in September, and any story reporting the market’s reading as though it were the Chair’s statement has quietly promoted one to the other. That distinction matters, because it tells you how much of this repricing rests on interpretation rather than on anything the Fed has announced.
The harder evidence is in the July vote
If you want evidence of a hawkish committee, skip the speech and read the July FOMC statement. At the July 28-29 meeting, “The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve’s dual mandate.”
The vote was 9 to 3. All three dissenters preferred an increase of 0.25 percentage points.
That is the strongest fact in this story, and it predates Jackson Hole by a month. Three members of the committee already wanted to be tightening. Whatever Warsh did or did not signal on Friday, the hawkish shift was inside the room before he spoke.
There was no FOMC meeting in August, so 3.50% to 3.75% is the current setting. The FOMC’s 2026 calendar puts the next meeting on September 15-16, with a Summary of Economic Projections attached and the decision landing on the second day.
Conditionally, then: if the Fed raises by 25 basis points on September 16 and the Bank of Canada holds, the gap widens from 1.25 to 1.50 percentage points out to 1.50 to 1.75. The Fed has not hiked, and nothing here says it will. But that is the arithmetic if it does.
Why Canada is not in the same position
This is what gets lost when Canadian investors read US monetary policy coverage and assume it transfers.
Canada’s July CPI came in at 3.0% year over year, up from 2.8% in June. On the headline alone, that looks like a country with an inflation problem and a central bank behind the curve.
Now take gasoline out. Gasoline rose 25.7% year over year and was the main driver of the headline number. CPI excluding gasoline was 2.2%, and July was the third consecutive month at that level.
That single line is the best explanation of why the Bank of Canada can sit still while the Fed argues with itself. It is not that Canadian inflation looks lower on a friendlier measure. It is that the underlying series has been flat for three months while the headline moved, which is a very different situation from a trend that is genuinely re-accelerating. Groceries are the exception worth naming: up 3.1%, above the headline rate for an 18th consecutive month, and a category no household gets to average away.
The rest of the Canadian picture is not demanding tighter policy either. July’s Labour Force Survey showed employment up 75,000 (0.4%) and the unemployment rate at 6.4%, a third consecutive monthly decline and the lowest in two years, with average hourly wages up 2.8% year over year to $37.17. Real GDP grew 0.8% in the second quarter, with June up 0.3% on the month, which we covered in our Q2 GDP piece.
Markets are positioned accordingly. On our own calculation from Montreal Exchange settlement data, one-month futures on CORRA, the overnight rate the Bank targets in practice, settle at 2.275% for the month containing the decision against 2.2725% for the month before it. Once you account for the part of the month that falls after Wednesday, that difference works out to 0.26 basis points of implied change. Spot CORRA sits at 2.25%, exactly at the target, so the calibration checks out. Essentially nothing is priced. The Reuters poll published August 28 points the same way: all 35 economists surveyed expect a hold, the median path has the rate flat through the rest of 2026, and the first move in that median path is a hike to 2.50% in late 2027, with 47% expecting at least one hike by mid-2027.
Direction up in both countries, then. Canada’s priced years out, the Fed’s argued about for a meeting two weeks away. Our Bank of Canada week-ahead preview has the full what-to-watch list for Wednesday’s announcement at 9:45 am ET, with Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers holding a press conference at about 10:30 am ET.
What the tape has already done with it
Some of this has been priced in front of you. As of the August 31, 2026 close, the S&P/TSX Composite finished at 36,270.48, down 0.78%, and the S&P 500 closed down 0.33% at 7,686.14. (We reconcile our TSX close against a previous close of 36,553.92, which matches our own published Friday figure. Several third-party summaries carry a different Monday level and none of them reconcile.)
The sector split is the interesting part. Gold was the worst TSX sector at -1.67%, with Barrick down 2.17% to $62.16 and Kinross down 2.41% to $42.44. Energy was the best at +1.46%, Canadian Natural up 1.98% to $69.49. Financials fell 0.69%, technology 1.43% and materials 1.65%. Our Monday recap walks through the session and ties the gold weakness to this same repricing, the logic being that higher-for-longer US real rates raise the opportunity cost of holding a metal that pays nothing. For scale, that 0.78% day sits inside an August that gained 2.96%, a fifth consecutive monthly gain, with the index up 14.4% year to date from its December 31, 2025 close of 31,712.80.
What a wider gap would mean for a Canadian portfolio
None of the following is a prediction. It is the mechanical consequence of a wider rate gap, which is what you want to reason about before a decision rather than after one.
The loonie. All else equal, a wider rate gap is downward pressure on the Canadian dollar, because capital is paid more to sit in US dollars. The loonie was at 72.12 US cents at the August 31 close per the Bank of Canada’s daily exchange rates, against 72.00 cents on August 28. A weaker loonie raises the Canadian-dollar value of US holdings and of the US revenue Canadian exporters earn, and raises the cost of anything bought in US dollars, travel included. We are not going to guess at a level.
Hedged versus unhedged US exposure. Worth knowing which side of it you are on: unhedged US holdings gain in Canadian-dollar terms when the loonie falls, hedged ones are designed not to. That is a structural choice in your account, not a trade.
Rate-sensitive Canadian income assets. REITs, utilities and dividend payers take their cue mainly from Canadian long rates, and a Bank of Canada sitting at 2.25% is a steadier backdrop than the one US holders face. Financials are the other rate-sensitive Canadian block worth watching. We broke down where the Big Six landed in Q3, and the sector page is at Canadian bank stocks.
GICs and savings. With the Bank on hold at 2.25%, Canadian deposit rates are not about to reprice upward on Wednesday. If you have been waiting for a better GIC rate before locking in, that is a planning fact rather than a recommendation.
What to watch next
Wednesday brings the Bank of Canada at 9:45 am ET and the press conference at about 10:30. Thursday brings merchandise trade at 8:30 am ET, and Friday brings the August Labour Force Survey at 8:30 am ET, the first read on the Canadian job market since the decision. August CPI lands September 14, the day before the FOMC convenes, and the Fed’s decision follows on September 16.
Two central banks, one continent, and the question in front of Canadian investors is no longer who cuts next. It is who moves first, and how far apart they are willing to let the gap get.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Market data as of the August 31, 2026 close. Policy rates as of September 1, 2026.
