Live updates: Bank of Canada expected to deliver first rate hike in three years as oil shock deepens

10/28/26 08:42

U.S. Federal Reserve expected to remain on hold today

– Mark Rendell

A few hours after the Bank of Canada rate announcement, we’ll get the latest rate announcement from the U.S. Federal Reserve. No one is expecting fireworks.

After raising the target for federal funds rate by a quarter-point last month, the Fed is widely expected to remain on hold today. The decision will be announced at 2 p.m. ET followed by a press conference by Fed chair Kevin Warsh at 2:30 p.m.

In some ways, the case for another rate hike is stronger in the U.S. than in Canada. Headline inflation came in at 3.7 per cent in September, and the American economy continues to churn out solid growth numbers. That said, interest rates are already considerably higher in the U.S. than in Canada, and the Fed probably doesn’t want to rock the political boat by raising borrowing costs six days before the U.S. midterm elections.

Markets expect the Fed to resume tightening in December, and are pricing in three quarter-point hikes by the end of 2027. But don’t expect much guidance from Warsh, who remains allergic to any form of forward guidance.

10/28/26 08:10

Is this the start of a tightening cycle?

– Mark Rendell

There’s been considerable uncertainty about the timing of the Bank of Canada’s first interest rate hike, but less about the direction of travel.

Financial markets currently expect four quarter-point rate hikes from the central bank by the end of 2027, including one today. That would take the policy rate from 2.25 per cent – the lower end of what the bank considers to be a neutral monetary policy setting – to 3.25 per cent, the top end of the neutral band.

Some Bay Street analysts, however, think market pricing for a tightening cycle is too aggressive. Nineteen out of 34 economists polled by Reuters last week expect the Bank of Canada to deliver a quarter-point hike today, and 16 expect it to follow up with a second hike by March, 2027. However, the median poll respondent then expects the bank to keep the policy rate steady at 2.75 per cent.

How much the bank’s governing council ultimately moves will likely depend on factors well beyond its control, such as the state of the war in the Middle East and trade talks between Ottawa and Washington. If global oil prices remain high and Prime Minister Mark Carney can land a trade deal with U.S. President Donald Trump, buckle your seatbelts for rate hikes. But if oil prices fall, and the U.S. moves ahead with additional tariffs it’s threatened against Canada’s auto industry, any tightening cycle could be short-lived.

10/28/26 07:00

Bank of Canada expected to raise key interest rate as oil shock moves to the forefront

– Mark Rendell

Bay Street is torn between head and heart heading into today’s Bank of Canada rate decision. Most analysts don’t think the central bank should raise interest rates. Nonetheless, most expect it to do just that.

As recently as two weeks ago, traders and forecasters were expecting another snoozer from the bank, which has kept its benchmark interest rate steady at 2.25 per cent since last October. Headline inflation is running high – coming in at 3.1 per cent in September – but that’s mostly owing to a global oil price shock that domestic interest rates can’t control. The Canadian economy has perked up in recent quarters, but the collapse of Canada-U.S. trade talks in August followed by another round of tit-for-tat tariffs has added to uncertainty.

Expectations, however, began to shift a week-and-a-half ago, after Governor Tiff Macklem spoke to reporters from the International Monetary Fund meeting in Bangkok. He said the persistence of the global oil price shock tied to the war in the Middle East was becoming a significant concern. The bank, he said, expected to raise its inflation forecast in its Oct. 28 Monetary Policy Report.

“The question we’re going to be asking ourselves is: Is inflation likely to come back down toward our [2-per-cent] target on its own, or are we going to have to raise interest rates to influence the path, nudge the path for inflation back toward the target?” he said.

Since these comments, benchmark oil prices have risen further, with a barrel of Brent Crude trading near a six-month high of US$115 and West Texas Intermediate trading at US$101.

Financial markets have taken Macklem’s focus on oil prices as a signal that the bank intends to raise interest rates for the first time since the summer of 2023. This conviction was bolstered by the bank’s quarterly consumer and business surveys, published last week, which showed a rise in inflation expectations. Interest rate swap markets went from pricing a roughly 35-per-cent chance of a hike, to an 80-per-cent chance of a hike, according to Bloomberg data.

Still, there’s an unusual amount of uncertainty surrounding the decision. Aggressive market pricing is mostly based on an interpretation of Macklem’s recent remarks, rather than hard economic data. The latest Consumer Price Index numbers show little evidence high oil prices are pushing up other prices and creating a widespread inflation problem. And the Canadian economy is hardly in rude health amid elevated unemployment, a soggy housing market and outstanding questions about the future of Canada-U.S. trade.

The Bank of Canada has surprised markets before. Could it do so again this morning?

Read more about today’s expected Bank of Canada decision.