Bank of Canada raises rates for the first time since 2023 as inflation outlook worsens
The Bank of Canada (BoC) raised its key policy rate by a quarter percentage point to 2.5%, its first increase since July 2023, citing an inflation outlook that has worsened since its July forecast. The central bank pointed to persistently high oil prices tied to the ongoing conflict in the Middle East, along with growing signs that businesses plan to pass more of their higher costs on to consumers. The BoC now projects inflation will rise to around 3.5% by year-end before gradually easing back to its 2% target around mid-2028.
Why this matters: The decision reflects the BoC’s effort to keep elevated energy prices from spreading into broader inflation, even as some slack remains in the economy, with unemployment holding near 6.5%. The BoC noted that a further increase could be needed but said it will proceed carefully given ongoing uncertainty, including Canada-U.S. trade relations. The BoC’s next policy decision is scheduled for December 9.
U.S. Federal Reserve holds rates steady in a split vote as growth remains strong
The U.S. Federal Reserve (Fed) held its benchmark interest rate steady at a range of 3.75% to 4.00%, though the decision was not unanimous, with two policymakers voting in favour of a rate increase. In its statement, the Fed upgraded its assessment of economic growth from solid to strong. Fed Chair Kevin Warsh noted that inflation remains elevated and that policy is starting to have some effect, though it is too early to draw firm conclusions.
Why this matters: The split vote highlights a divide among policymakers over whether further tightening is needed to bring inflation back to the Fed’s 2% target. Data released the following day showed the U.S. economy grew at an annualized 3.4% in the third quarter, ahead of expectations, which may give policymakers more room to keep rates elevated. Attention now turns to upcoming employment and inflation data ahead of the Fed’s next policy decision on December 9.
| Index† | Change (%) | Index Level | |||
|---|---|---|---|---|---|
| Week | MTD | YTD | 1 Yr | ||
| Treasury Bill | 0.04 | 0.19 | 1.85 | 2.24 | 194 |
| Canadian Bonds | 0.31 | 1.48 | 0.69 | -0.26 | 1,208 |
| Canadian Equities | -0.39 | 1.24 | 14.41 | 20.75 | 35,620 |
| U.S. Equities | -0.56 | -0.87 | 11.75 | 12.39 | 7,580 |
| International Equities | 0.87 | -0.73 | 10.12 | 13.94 | 3,101 |
| Emerging Market Equities | -0.72 | -8.04 | 13.76 | 13.60 | 1,567 |
| European Equities | 1.71 | 2.17 | 12.67 | 16.17 | 217 |
| Currencies† | Change (%) | Exchange rate | |||
|---|---|---|---|---|---|
| Week | MTD | YTD | 1 Yr | ||
| C$/US | 0.21 | 1.84 | -1.78 | 0.08 | 0.72 |
| C$/Euro | 0.63 | 3.43 | 3.38 | 3.72 | 0.64 |
| C$/Pound | 0.11 | 0.89 | -1.18 | -1.73 | 0.53 |
| Commodities (US$)† | Change (%) | Price | |||
|---|---|---|---|---|---|
| Week | MTD | YTD | 1 Yr | ||
| WTI Crude Oil ($/Barrel) | 0.82 | 17.76 | 82.92 | 73.45 | 104 |
| Gold ($/oz) | -2.72 | -6.87 | -13.31 | -7.07 | 3,899 |
Treasury Bill is represented by the FTSE Canada 60 Day T-Bill Index (C$), Canadian Bonds represented by the FTSE Canada Universe Bond Index (C$), Canadian Equities represented by the S&P/TSX Composite TR Index (C$), U.S. Equities represented by the S&P 500 TR Index (US$), International Equities represented by the MSCI EAFE GR Index (US$), Emerging Market Equities represented by the MSCI EM GR Index (US$), European Equities represented by the MSCI Europe Index (€). It is not possible to invest directly in an index. Assumes reinvestment of all income and no transaction costs or taxes.
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