U.S. Federal Reserve, Bank of Canada keep key interest rates unchanged amid elevated inflation concerns

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04/29/26 14:00

U.S. Federal Reserve holds rates steady, cites elevated inflation

The Federal Reserve held interest rates steady on Wednesday, but in its most divided decision since 1992 noted rising concerns about inflation in a policy statement that drew three dissents from officials who no longer feel the U.S. central bank should communicate a bias towards lowering borrowing costs.

A fourth dissent at the meeting came in favour of a quarter-percentage-point rate cut.

“Inflation is elevated, in part reflecting the recent increase in global energy prices,” the Fed said in its policy statement, a shift from previous language saying that inflation was just “somewhat” elevated.

“Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook.”

The 8-4 vote was the most divisive since October 6, 1992, and shows the breadth of opinion incoming Fed Chair Kevin Warsh will face in pursuing rate cuts that President Donald Trump says he expects from his chosen successor to Jerome Powell, whose term as central bank chief ends on May 15.

Though the latest policy statement retained language about how the Fed would assess the “extent and timing of additional adjustments” to rates, a phrase that pointed to future cuts as the next likely move, three policymakers objected.

Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan, while supportive of holding the policy rate steady in the current 3.50 per cent to 3.75 per cent range, “did not support inclusion of an easing bias in the statement at this time” and voted against the new statement.

With global oil prices lodged above US$100 a barrel due to the U.S.-backed war against Iran, the Fed has been hard-pressed to determine if the impact is likely to be seen more through depressed growth or higher inflation, keeping the policy rate in the range where it has been since December despite repeated demands by Trump for looser monetary policy.

Alongside elevated inflation, “the unemployment rate has been little changed in recent months” while the economy continues to expand “at a solid pace,” the Fed said.

- Reuters

04/29/26 13:00

The next Bank of Canada announcement, and other dates to note

- Mark Rendell

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• The next Bank of Canada rate announcement is on June 10.
• The U.S. Federal Reserve has a rate announcement later this afternoon, where it is widely expected to hold the target for the federal funds rate at 3.5 to 3.75 per cent.
• The Bank of England and the European Central Bank will deliver interest rate decisions on Thursday. Both are expected to stand pat, while signalling a willingness to raise rates if oil prices stay high.
• Statistics Canada will publish February GDP numbers on Thursday. It will also publish a flash estimate for March GDP, giving the first assessment of first-quarter GDP.
• Statscan will publish April Labour Force Survey numbers on May 8 and April Consumer Price Index inflation numbers on May 19.

04/29/26 12:15

Opinion: With war, trade woes and a shrinking population, the Bank of Canada was right to hold rates

– Jeremy Kronick and Steve Ambler

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Markets have been confident that the Bank of Canada would hold its policy rate constant, which it did this morning, despite the upward blip in inflation to 2.4 per cent in March, up from 1.8 per cent in February.

As was the case at the time of its last announcement on March 18 (when it also held its policy rate steady), the bank emphasized several sources of risk to the Canadian economy, notably the uncertain breadth and duration of the conflict in the Middle East, the supply chain disruptions resulting from it, and the upcoming review of the United States-Mexico-Canada Agreement.

To this we would add that, together, these uncertainties – as well as others we will discuss – create both upward and downward pressure on inflation, making the job of the central bank all the more difficult. As a result, we think the Bank of Canada was wise to leave its policy rate unchanged.

Read the full column here.

04/29/26 11:30

Uncertainty is the problem – for the Bank of Canada and the rest of us

- Erica Alini

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The outlook continues to be hazy for the Bank of Canada. There’s the question of whether and how Ottawa will manage to reach a deal for the renewal of the United States-Mexico-Canada Agreement, which is up for review this summer. And now, there’s also the uncertainty over how long the energy crisis tied to the Iran war will last.

The path forward for the economy and inflation hinges to a large extent on these two hard-to-predict outcomes. This makes it tricky for the bank to decide what the future course of interest rates should be.

That nebulous future is also a big problem for Canadians’ everyday financial decisions. There’s the uncertainty in the job market, for example. Employers are in wait-and-see mode and not hiring much. For job seekers it means longer unemployment spells. For many who have jobs, it means wondering how secure their employment is.

Uncertainty has also translated into volatile financial markets, with wild swings in stocks and oil prices in response to developments in the Middle East. And then, of course, there’s the uncertainty about what the Bank of Canada itself will do and where interest rates are headed.

That question is complicating prospective homebuyers’ decisions about when to jump into the market and making it difficult for those with upcoming mortgage renewals to know which mortgage rate and term to choose.

The Bank of Canada is in a holding pattern – and so are many consumers.

04/29/26 11:10

Macklem on differences between today and the 2022 commodity price shock

- Mark Rendell

“One of the lessons from COVID is that when the economy is already overheated, when it’s already in excess demand, an additional big negative supply shock that boosts global energy and food prices can spread quickly to other goods and services… Today’s situation is quite different. The economy is in excess supply. Against that background, businesses are a bit more cautious about passing on cost increases. Doesn’t mean they won’t pass them on at all. And certainly in businesses where energy is a big part of the cost structure, they have to pass some of it on. But they will tend to be more cautious.”

04/29/26 11:05

Macklem on risk management amid uncertainty

- Mark Rendell

“There is no risk-free path for the policy interest rate. If we had raised rates now and then oil prices come down in line with what the market is expecting, by the time those higher interest rates are impacting the economy, they wouldn’t be needed, and we’d wish we hadn’t raised the policy interest rate. But look, if oil prices stay high and we hold rates, we maintain for too long, we could see higher energy prices spread to other prices of other goods and services and start to become more persistent inflation. In that case, we will probably wish that we’d raised rates earlier. So we’ve got to manage both those risks.”

04/29/26 10:59

Senior deputy governor Carolyn Rogers on the risks ahead

- Matt Lundy

“In the near term, the shock that’s sort of hitting us most directly is the war in the Middle East. It’s pushing oil up and that’s having an immediate impact on near-term inflation. And as the Governor said, if that persists, the risk increases that that oil price starts to feed into the price of other things and we need to deal with an inflation shock.

Over the longer term, the trade tensions are the bigger threat to the Canadian economy. We’ve got a restructuring under way, but we also have a review of the trade agreement that we’re expecting to happen this summer. If there is a big change in that agreement, that could also present sort of a new shock to the economy, too.”

04/29/26 10:57

Macklem: No set timeline for rate hikes if oil prices remain high

- Mark Rendell

“The higher oil prices go, and the longer they’re higher, the more likely it is that we’ll have to raise rates to bring inflation back to target. But I want to stress there is no set timeline here. It really depends on the conditions. It’s going to depend importantly on what oil prices do, what we think they’re going to do going forward. It’s all going to depend on what we see: How much are higher oil prices spilling into the prices of other goods and services? How much is our outlook for inflation changing? ... It’s about the shock itself, and it’s about the propagation of the shock. And if we’re in a situation where the shock is bigger, in particular if it’s more persistent, and we see clear evidence, we see growing evidence of propagation, that would be a clear signal that rates probably do need to go higher to get inflation back to target.”

04/29/26 10:53

Macklem on trajectory for monetary policy

- Mark Rendell

“If things evolve broadly in line with the outlook we’ve presented, and in particular, oil prices come down broadly in line with the futures curve, something close to the policy rate that we have today is probably about right. You might need a small adjustment, but it would be reasonable to expect small. But particularly if energy prices go higher, and particularly if they stay higher for longer, there could well be a need to increase the policy rate to get inflation back to 2 per cent. And really the message is, we’re committed to ensuring that inflation does stay close to 2 per cent over time.”

04/29/26 10:50

Macklem on energy and food prices

-Matt Lundy

“These price increases reflect global events. I mean, the best thing that could happen would be that these price increases go away at the source. But that’s not something we can control. … What we can control is we can ensure that these price increases – in particular, this surge in gasoline prices and other fuel prices – it doesn’t spread [and] become generalized, persistent inflation.”

04/29/26 10:48

Economists react to today’s BoC rate hold

– Darcy Keith

Here’s a sampling of how economists are reacting in written commentaries issued after the BoC decision.

Royce Mendes, head of Macro Strategy at Desjardins

“The good news is that officials share our view that spillovers to core inflation will be limited. The central bank expects core inflation to end 2026 at 2.0 per cent, which is actually a touch lower than the 2.1 per cent pencilled in back in January. The commentary accompanying the rate decision also highlighted the favourable starting point for underlying inflation, with the Bank of Canada’s preferred core measures just slightly above 2 per cent in March and the proportion of components rising above 3 per cent also having declined in recent months. So while officials acknowledged the cost pressures associated with high oil prices, they implied that their operational target, underlying inflation, won’t be impacted. … Overall, the Bank of Canada appears comfortable leaving rates unchanged for the rest of the year, unless oil prices remain high. Assuming oil prices decline to levels consistent with their assumptions, the central bank’s communications suggest that any changes in the target rate will be small. We take that to mean that once the economy recovers to full health, central bankers will raise the policy rate gradually to 2.75 per cent, the mid-point of their estimated neutral rate range. Our expectation is that those rate increases aren’t in the cards until 2027.”

Avery Shenfeld, chief economist, CIBC

“The Bank of Canada will be standing on guard for thee, but that’s not just against elevated inflation, but also sluggish growth and excessive slack, a two-way risk that is keeping interest rates frozen in place. … It sees ‘little evidence’ of a spillover to core inflation so far, but will keep an eye on that, and ‘will not let higher energy prices become persistent inflation.’ If that sounds hawkish, it’s worth noting that the Bank doesn’t see that happening, projecting a spike to 3 per cent inflation but a return to the 2 per cent target early next year, a view we share, and while it says it might need to adjust the policy rate, those changes ‘can be expected to be small.’ That sounds like a central bank that thinks it could stand pat, as it cites both reasons why it might have to cut (due to trade restrictions) or hike (if energy prices spark a broader inflation).”

Taylor Schleich & Ethan Currie, economists at National Bank

“While they still stand ready to respond if energy inflation spreads and becomes persistent, it’s easy enough to see that this is not their base case outlook. The Bank’s updated projections saw all-items inflation revised up non-trivially (by 3 ticks for 2026 as a whole) but they marked down their projection of core inflation relative to January. … Policymakers may have been comforted by what was a constructive Business Outlook Survey, which indicated growing optimism (at least before the Iran war). Their growth path is consistent with eventual rate hikes, though the timing remains uncertain. The current Overnight Index Swaps-implied rate path, implying a hike or two by year-end, is far more realistic than the >75 bps of 2026 tightening that were (briefly) priced last month. But while a Q4 hike is plausible, we continue to expect the Bank to wait until 2027 before starting to move back toward neutral (i.e., 2.75 per cent). To this point, Macklem acknowledged that under their base case outlook, ‘changes in the policy rate can be expected to be small’. Overall, this is a largely as expected rate decision. The Bank will remain comfortably on the sidelines for now, but their base case outlook is consistent with eventual hikes, not cuts.”

04/29/26 10:37

Glut of small condos in major cities restraining new housing construction, BoC says

- Rachelle Younglai

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The Bank of Canada singled out the glut of small condos in major cities as a factor that will curb new homebuilding.

In its quarterly monetary policy report, the central bank repeatedly said the downturn in the housing market is weighing on the country’s economic growth.

It said residential investment is expected to be subdued. It also said that affordability issues and the drop in population growth are “constraining demand and weighing on housing activity.”

The report then acknowledged that there are thousands of tiny condos sitting empty and unsold in some major Canadian cities.

“A substantial inventory overhang of small condominiums in some major centres will restrain new construction,” said the report.

Urbanation Inc. has estimated that nearly 15,000 unsold condo units will hit the market in the Toronto region over the next few years. That is in addition to the some 7,000 units that were either unsold or taken back by the developer when buyers defaulted on their purchase agreements.

The Ontario and federal governments have announced an HST rebate on newly-built homes in an effort to clear up some of the unsold inventory and kickstart homebuilding.

04/29/26 10:30

Key quotes from Tiff Macklem’s opening statement

- Maia Tustonic

On the path for interest rates: “Our baseline forecast assumes oil prices will come down and U.S. tariffs will remain at the current levels. If this holds true, a policy rate close to current settings looks appropriate to support adjustment in the economy and return inflation to target. There may still be a need to adjust the policy rate depending on how the risks evolve. But if the economy evolves broadly in line with the base case, changes in the policy rate can be expected to be small.”

On oil prices and the war in the Middle East: “If oil prices continue to increase, and particularly if they remain elevated, the risk that higher energy prices become ongoing generalized inflation increases. If this starts to happen, monetary policy will have more work to do – there may be a need for consecutive increases in the policy rate.”

On the USMCA review: “If the United States imposes significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth.”

On inflation: “So far, there is little evidence that higher oil prices have fed through to other goods and services prices more broadly. But it is early days and we will be watching this closely.”

On economic growth: “In Canada, growth looks to have resumed after contracting at the end of 2025. Consumer and government spending are contributing to growth, while U.S. tariffs and trade uncertainty are weighing on exports and business investment.”

On GDP: “The conflict in the Middle East will affect the composition of growth, but the impact on overall growth is expected to be small because higher global oil prices increase the value of our energy exports even as they squeeze consumers and many businesses.”

04/29/26 10:27

For rates, all options are on the table

- Matt Lundy

For the Bank of Canada, just about everything is on the table this year: rate hikes, rate cuts – maybe no changes at all.

Governor Tiff Macklem laid out each of these scenarios in his press conference opening statement. The central bank’s baseline forecast assumes that oil prices will subside and that U.S. tariffs won’t budge.

“If this holds true, a policy rate close to current settings looks appropriate to support adjustment in the economy and return inflation to target,” he said.

Of course, this scenario hinges on cooler heads prevailing between the United States, Israel and Iran, and for a U.S. President who goes by “Tariff Man” to ease up on Canada, one of his preferred punching bags.

“If the United States imposes significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth,” Mr. Macklem explained.

On the other hand, if oil prices continue to increase and remain elevated, they could bleed into broader inflation. “If this starts to happen, monetary policy will have more work to do – there may be a need for consecutive increases in the policy rate,” Mr. Macklem said.

The central bank’s Monetary Policy Report, which was released alongside Wednesday’s rate decision, forecasts that Brent crude will ease to US$75 a barrel by mid-2027 as shipments through the Strait of Hormuz resume. That would be a vast improvement: as of early Wednesday, those prices had shot up above US$115.

For Canadians, there is very little certainty to glean from Wednesday’s decision. The central bank has few levers to pull in a world that’s been upended by U.S. protectionism and renewed conflict in the Middle East. Be prepared for anything – or even nothing – on rate changes.

04/29/26 10:22

Not-so-great news for fixed and variable mortgages, and renewals

- Rachelle Younglai

The Bank of Canada warning that it may have to increase its benchmark interest rate could raise the cost of funding for fixed-rate mortgages. That will make it harder for would-be buyers to afford a mortgage and make it more difficult for homeowners who are due to renew their home loans this year.

Although the central bank kept its key interest rate steady at 2.25 per cent, Governor Tiff Macklem said if oil prices remain elevated, it would ramp up consumer prices. He said if this starts to happen, “there may be a need for consecutive increases in the policy rate.”

Mortgages had been getting cheaper before war in the Middle East erupted in February and pushed up the cost of funding for fixed-rate mortgages.

Before the Bank of Canada warning on Wednesday, the interest rate on the five-year fixed mortgage in April averaged 4.19 per cent, according to MortgageLogic.news data. That’s higher than the 3.83 per cent prior to the start of the war and about double the rates of 2020 and 2021.

If the Bank of Canada raises interest rates, that would not only make fixed-rate mortgages more expensive, it would increase the cost of variable-rate mortgages.

“Most Canadians coming up from renewal this year are facing higher payments,” said Victor Tran, a mortgage expert with Ratesdotca, a rate-comparison website.

Mr. Tran said borrowers have already been dealing with large payment increases when they renew their mortgages and said the average increase to their monthly payment has been between $300 to $400.

04/29/26 10:10

Markets interpret BoC decision as dovish tilt

– Darcy Keith

Markets immediately interpreted this decision as having a dovish tilt, with both the Canadian dollar and bond yields slipping.

The loonie dropped about one-10th of a cent to about 72.90 cents US, while the two-year bond yield went to 2.90 per cent from 2.91 per cent.

Not big moves, but with Tiff Macklem’s commentary suggesting inflation may be peaking in April, it’s indicative of a market believing that rate hikes – if any – could be months away.

04/29/26 10:05

BoC predicts limited boost to GDP, near-term inflation to rise due to war in Mideast

- Maia Tustonic

As a net oil exporter, Canada typically gains from higher oil prices. However, the Bank of Canada said it expects the country’s GDP to benefit only slightly from the oil shock caused by the conflict in Iran.

Brent and West Texas Intermediate oil prices have recently hovered around US$100 a barrel, while Western Canadian Select has risen above US$80 a barrel. The central bank expects prices to decline in the coming months and stabilize halfway through 2027, limiting the boost to energy-sector investment and national GDP.

Consumers will feel the oil shock. Soaring gasoline prices pushed the inflation rate up to 2.4 per cent in March, and the central bank projects it will peak around 3 per cent in April before declining alongside oil prices through the rest of the year. Higher gas and food prices may make consumers cut back on spending, the central bank said.

However, the projection makes a key assumption – that oil prices cool relatively soon. If the Iran conflict persists and oil prices remain at US$100 a barrel, the central bank said the energy sector can expect more investment, but consumers would face potentially significant cost pressures.

04/29/26 09:57

Exports drop significantly but less than expected, BoC says

- Maia Tustonic

Several Canadian industries have seen significant decreases in exports since the United States imposed tariffs slightly more than a year ago, the Bank of Canada said.

The hard-hit steel industry has seen its exports halved. Tariffs also exacerbated existing trade disputes in the softwood lumber industry, with exports – and employment – now down 20 per cent compared with the 2024 average.

More positively, the central bank noted export drops were less harsh than expected, bolstered by businesses adapting and Ottawa’s Buy Canadian Policy.

Automobile manufacturing exports dipped slightly, but are holding steady. The aluminum industry has made up half of its tariff losses as U.S. supply runs out and exports to Europe pick up. Copper exports defied the tariff hit and rose instead.

Looking ahead, the central bank said steel exports could struggle further as contracts expire, while aluminum could see an uptick as production in the Middle East falters owing to the Iran conflict.

The upcoming USMCA review is making Canadian businesses wary, the central bank said, with several noting potential difficulties in shifting trade away from the U.S. to other markets because of higher transportation costs.

04/29/26 09:45

BoC holds rate at 2.25 per cent, but warns of energy and trade risks

- Mark Rendell

The Bank of Canada held its benchmark interest rate steady on Wednesday, but warned that interest rates may need to change depending on the duration of the oil price shock and the outcome of trade talks with the United States and Mexico.

As widely expected, the bank’s governing council kept its policy rate at 2.25 per cent for the fourth consecutive time, even as the conflict in the Middle East has pushed energy prices sharply higher and squeezed Canadian consumers at the gas pump.

Governor Tiff Macklem said his team decided to “look through” the energy price shock in the near term. But he said the trajectory of monetary policy will depend to a significant degree on how long oil prices remain elevated – something that’s contingent on the outcome of peace talks between the United States and Iran.

“Our baseline forecast assumes oil prices will come down and U.S. tariffs will remain at current levels. If this holds true, a policy rate close to current settings looks appropriate,” Mr. Macklem said, according to the prepared remarks from his press conference opening statement.

In this situation, the bank may still need to adjust rates, but changes “can be expected to be small,” he said, in unusually candid remarks about the direction of monetary policy.

The bank is also considering a scenario where oil prices remain elevated and start bleeding into other consumer prices, becoming generalized inflation.

“If this starts to happen, monetary policy will have more work to do – there may be a need for consecutive increases in the policy rate,” Mr. Macklem warned.

Global oil prices have gyrated wildly in recent weeks, reacting to each new headline from the U.S.-Iran peace talks. On Tuesday, the price of a barrel of Brent crude hit US$115, while West Texas Intermediate rose back above US$100. In January, the bank expected Brent would remain around US$60 over the next two years.

The energy price shock has pushed up gasoline prices in Canada and raised headline inflation in March to 2.4 per cent from 1.8 per cent the previous month. The bank expects headline inflation to increase to about 3 per cent in April.

Oil prices aren’t the only source of uncertainty for the Canadian economy and for monetary policy. Mr. Macklem also highlighted the six-year review of the United States-Mexico-Canada trade agreement, which is scheduled to happen on July 1.

Officials from all three countries have said they expect negotiations to continue past the summer deadline, and the future of the trilateral agreement remains uncertain.

“If the United States imposes significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth,” Mr. Macklem said.

Read the full story here.

04/29/26 09:20

Investors expect BoC to stand pat on interest rates until fall

-Matt Lundy

Investors expect the Bank of Canada to stand pat until the fall.

As of midday Tuesday, the swaps market was pricing in one quarter-point rate hike at the October meeting, according to Bloomberg data. That would take the bank’s policy rate to 2.5 per cent.

The path for interest rates hasn’t shifted much in recent weeks, favouring either the October or December decisions for a move higher. But at one point in March – when fighting in the Middle East was especially intense and oil prices were surging – investors were expecting upward of three rate hikes from the Bank of Canada this year, owing to the prospect of sharply higher inflation that policymakers would be forced to contain.

The Federal Reserve, meanwhile, could see even less action. Investors don’t expect U.S. interest rates to budge this year, despite President Donald Trump’s wishes for a sizable decline in borrowing rates.

04/29/26 09:05

Ottawa announces $6-billion for skilled trades, projects smaller deficit in spring economic update

- Bill Curry, Stephanie Levitz, Mark Rendell

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Finance Minister François-Philippe Champagne released a spring economic statement Tuesday that accounts for more than $54-billion in new spending over six years, while still beating Ottawa’s deficit targets thanks to improved growth forecasts.

Much of that new spending includes recent multibillion-dollar announcements such as boosting the GST credit and a short-term break on gas taxes.

The major new funding announced for the first time Tuesday includes about $6-billion over five years for a package of incentives aimed at education and the skilled trades, which the government calls “Team Canada Strong.”

As Prime Minister Mark Carney’s government prioritizes major new infrastructure and energy projects, the package is aimed at ensuring Canada has the skilled labour available to take on the expected boost in construction jobs across the country.

Canadian workers and employers will also get a break on Canada Pension Plan premiums. Starting Jan. 1, 2027, the base contribution rate will drop to 9.5 per cent, from 9.9 per cent.

Here are nine highlights from the spring economic update.

04/29/26 08:45

Oil price trajectory uncertain amid a fragile U.S.-Iran ceasefire

- Mark Rendell

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The most important question for monetary policy right now is diplomatic: Will the ceasefire between the United States and Iran hold? And will oil tankers be allowed to transit the Strait of Hormuz, which has been effectively closed since the start of the war in late February?

Global oil prices have gyrated on each new headline coming out of the U.S.-Iran peace talks.

The price of a barrel of West Texas Intermediate crude plunged to as low as US$84 from US$112 after the ceasefire was announced two weeks ago. It was back at US$104 on Tuesday, as Washington and Tehran have pulled back from the high-level peace talks brokered by Pakistan, and continued to clash over control of the Strait. Brent crude, the global benchmark, hit $115 on Tuesday.

The spike in oil prices over the past two months has led to a sharp increase in gasoline prices in Canada and elsewhere. Gas prices jumped 21 per cent in March, the biggest one-month increase on record. On Monday, the average national gas price in Canada was $173.8 per litre, according to the Canadian Automobile Association, up from an average of $1.35 in February.

Meanwhile, air transport costs rose 4.9 per cent month-to-month in March, according to Statistics Canada, as higher jet fuel prices drove up airfares.

If the ceasefire turns into a more sturdy truce, global oil prices will likely drop, bringing local gasoline prices down as well. However, it’s unclear that we will get back to prewar oil prices any time soon, given the damage that’s been done to energy infrastructure in the Persian Gulf, and additional costs associated with riskier shipping through the Strait of Hormuz.

04/29/26 08:15

More central bank decisions on deck this week

- Mark Rendell

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It’s a busy week for central banks well beyond Ottawa. The U.S. Federal Reserve will deliver its latest announcement this afternoon at 2 p.m. ET, followed by a press conference by Fed Chair Jerome Powell at 2:30 p.m. ET.

Like the Bank of Canada, the Fed is expected to remain on hold, keeping the target range for the federal funds rate at 3.5 to 3.75 per cent.

The Bank of England and European Central Bank are on deck on Thursday. Both are expected to hold their benchmark rates steady, while signalling that they’re prepared to tighten monetary if global oil prices remain high.

Oil price shocks are a major challenge for central bankers everywhere. Higher energy prices can constrain economic activity while pushing up consumer prices, forcing central bankers to choose between raising interest rates to curb inflation, or cutting interest rates (or standing pat) to support economic activity.

This trade-off is more acute for energy importers such as Britain and the European Union, and less acute for oil exporters like Canada and the United States.

04/29/26 08:00

Measuring the tone of Bank of Canada speeches

-Dexter McMillan

While we wait for the next announcement, we took a look at Bank of Canada speeches going back to 1996. With a little help from an LLM, we ran a “tournament,” pitting randomly selected speeches from Bank of Canada officials since 1996 against one another and asking the AI: which is more hawkish?

We used the results of this to assign a hawkishness score to each speech (hat tip to American journalist Joe Weisenthal, who did something similar for the Federal Reserve speeches and whose methodology we’ve adapted).

Here are the results.

You can see how world events influence the tone of Bank of Canada speeches during the 2008 financial crisis and the COVID-19 pandemic.

During the pandemic, Bank of Canada officials struck a dovish tone as central bankers slashed interest rates to prop up a flagging economy, followed by a period of escalating hawkishness as inflation rates soared and higher interest rates were needed to dampen price pressures.

04/29/26 07:00

BoC expected to remain on hold as higher gas prices squeeze consumers

- Mark Rendell

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The Bank of Canada is expected to leave interest rates unchanged this morning, while signalling a willingness to act if oil prices remain high and start fuelling broader inflationary pressures.

Over the past two months, the conflict in the Middle East has pushed global oil prices sharply higher. Gasoline prices jumped 21 per cent in Canada in March, the largest one-month increase on record. That lifted annual headline inflation to 2.4 per cent from 1.8 per cent the prior month.

The Bank of Canada has said it will “look through” the energy price shock in the near-term, and financial markets broadly expect the bank’s governing council to leave its policy interest rate at 2.25 per cent for the fourth consecutive decision.

The key question is how the Governor Tiff Macklem and his team describe the energy price shock and its ripple effects on the Canadian economy.

Are they worried that higher gasoline prices are filtering through into other consumer prices and increasing inflation expectations? Do they think the jump in global oil prices is a net positive for Canada’s energy-exporting economy, or a net negative, given the squeeze consumers are feeling at the pump?

If Mr. Macklem emphasizes inflation risks, financial markets may lean into expectations for rate hikes later this year, pushing up bond yields. If he focuses more on downside risks to the Canadian economy, including from uncertainty about the future of the United States-Mexico-Canada trade agreement, markets may price in expectations for the bank to remain on hold through 2026.

Alongside the rate decision, the bank will publish its quarterly Monetary Policy Report (MPR), which will contain updated GDP and inflation forecasts. In the last MPR in January, the bank projected the Canadian economy would grow a meagre 1.1 per cent in 2026 and 1.5 per cent in 2027.

Given uncertainty about the trajectory of oil prices, which are tied to fragile ceasefire talks between the United States and Iran, the bank may decide to publish upside and downside scenarios, rather than a single forecast.

Economists will be eyeing the bank’s core inflation forecast in the MPR for hints about whether policymakers think the oil price shock is becoming entrenched. And they’ll be paying attention to an updated assessment of Canada’s economic potential and estimate for the “neutral rate.” The bank uses these to assess how much slack there is in the Canadian economy, and how stimulative interest rates are.

The rate announcement is at 9:45 a.m. ET followed by a press conference by Mr. Macklem and senior deputy governor Carolyn Rogers at 10:30 a.m. ET.

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