Bank of Canada Hikes to 2.5% as Fed Holds Rates Steady — SkimNews
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- Bank of Canada raised its policy rate 25 basis points to 2.50%, with Macklem's statement keeping open the possibility of more increases — 'there could be a need to increase the policy rate further' — while the council would 'proceed carefully'; Deputy Governor Carolyn Rogers said a hold was considered but the hike was made quickly under 'very strong consensus.'
- Bank of Canada forecast that higher energy and import prices will raise home construction and maintenance costs, while trimming its estimate of housing's drag on this year's average annual growth to 0.1 percentage point from 0.2.
- Bank of Canada is tightening against a supply-driven oil shock, the regime in which rate hikes are typically less effective at cooling prices than against an overheated economy; households face expensive debt, rising prices and job losses at the same time.
- Citi economist Veronica Clark said the 2.50% hike ran counter to its base case of no change, and expects no more hikes followed by two 25-basis-point cuts in July and October next year; David Rosenberg called the move 'totally unnecessary and premature.'
- Capital Economics economist Bradley Saunders called money markets' pricing of 75 basis points of further hikes over the coming year too hawkish, seeing only two more hikes next year, while TD's Marc Ercolao expects none this year and one 25-basis-point hike in Q1-2027 to 2.75%, roughly the middle of the bank's neutral range.
- Federal Reserve held its benchmark rate at 3.75–4.00% in a 10-2 decision, delaying changes until after next week's U.S. midterms and more inflation data, with Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting for a 25-basis-point hike; the S&P 500 rose 0.1% to within 1.1% of its record, the Dow added 107 points and the Nasdaq slipped 0.1%.
- RBC raised its Canadian prime rate 25 basis points from 4.45% to 4.70% effective Oct. 29, with other banks expected to follow on the rate tied to variable mortgage rates and lines of credit.
Why it matters: Money markets are pricing 75 basis points of further Bank of Canada hikes over the coming year, yet Capital Economics sees only two more hikes in 2027 and TD sees just one in Q1-2027, while RBC's prime rate rises to 4.70% on Oct. 29 for borrowers on variable mortgages and lines of credit.
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