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Bank of Canada monetary policy and trade tensions

Updated 14 times since CLSTR started tracking revisions of this situation.

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2026-10-27 08:47 UTC → 2026-10-27 10:52 UTC · added ~~removed~~

The Bank of Canada continues to navigate a complex economic landscape defined by inflation, trade volatility, and housing concerns. Governor Tiff Macklem has warned that escalating trade tensions and unpredictable U.S. tariffs could cause businesses to delay investment and hiring. In September 2026, the Bank held its overnight interest rate at 2.25% for the seventh consecutive meeting. However, following a decision by the U.S. Federal Reserve to implement its first rate hike in over three years, market expectations shifted. By late September, traders increasingly viewed a potential Canadian rate hike in October as a “toss-up.” Economic growth forecasts have faced downward ~~pressure.~~ pressure, with Macklem ~~indicated~~ indicating that trade unpredictability could reduce fourth-quarter annualized GDP growth to approximately 0.75%. This slowdown coincides with persistent inflationary pressures driven by rising energy costs, with oil prices approaching $100 per barrel. In mid-October, the Bank prepared to raise its quarterly inflation forecast due to surging crude oil and petroleum prices, ~~with Macklem~~ noting that Middle East conflicts and refinery capacity issues increase the risk of persistent inflation. ~~While RBC strategists expected core inflation to edge down to 1.8% from 2.1% in August, they monitored transportation categories for price pass-through risks.~~ By late October 2026, the Bank faced a pivotal decision as market odds for a 0.25% interest rate hike reached nearly 78%. This follows data showing headline inflation rose to 3.1% year-over-year in September, driven by a 27.8% increase in gasoline prices. Additionally, Canadian employment data showed a decline of 68,000 jobs in September, marking a second consecutive month of stalled growth and bringing the unemployment rate to 6.5%. As the October 28 decision approaches, ~~some analysts suggest~~ the Bank ~~may instead delay action until December or January, particularly as~~ must weigh the risks of energy-driven inflation against a weakening labor market, while the U.S. Federal Reserve is expected to hold its own rates steady.

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