The Bank of Canada’s quarter-point rate increase on Wednesday brought its benchmark closer to the Federal Reserve’s unchanged range, narrowing the difference between the two countries’ policy rates.
The Bank lifted its overnight target by 25 basis points to 2.50%, while the Fed kept its federal funds range at 3.75% to 4.00%. The Fed’s range is now 1.25 to 1.50 percentage points above Canada’s target. Before the Canadian increase, the gap was 1.50 to 1.75 points.
The Bank had kept its rate at 2.25% on Sept. 2, while the Fed raised its range by 25 basis points on Sept. 16. The latest decisions changed the rate difference between the two countries, with the Fed holding steady as Canada raised its benchmark.
Currency reports described movements at different points in the session. Reuters reported that the U.S. dollar initially showed little response to the Fed announcement, then weakened as Fed Chair Kevin Warsh spoke. FXStreet later reported that USD/CAD fell to a session low just above C$1.4000 during Warsh’s remarks. Earlier this week, EconoTimes reported the U.S. dollar had moved above C$1.40 ahead of the rate decisions.
The Bank said inflation had run above its July outlook while Canadian economic activity had improved. It reported that consumer price inflation had stayed near 3% since April and projected it could reach about 3.5% by the end of 2026. The Bank pointed to persistently high oil prices and the possibility that energy costs would feed into prices more broadly.
“There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully,” Bank of Canada Gov. Tiff Macklem said.
The Fed’s decision passed by a 10-2 vote. Fed Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack favored a 25-basis-point increase. The committee said inflation remained elevated.
The Bank of Canada’s next rate announcement is scheduled for Dec. 9. The Fed’s next meeting is set for Dec. 8-9, with a news conference scheduled for Dec. 9.
