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The Rate Cuts Are Over — Is a Hike Coming?

  July 23, 2026 Oil shocks, sticky inflation and a technical recession are pulling the Bank of Canada in opposite directions at once. For most of the past two years, the only question about the Bank of Canada was how far and how fast it would cut. The overnight rate fell from 5.00% to 2.25% between June 2024 and October 2025, one of the sharpest easing cycles in the Bank's history, and it has held there through six consecutive decisions since. That story is now over. The question on the table for the rest of 2026 isn't whether the Bank cuts again — it's whether the next move is actually a hike. Two conflicting signals, one Bank The case for staying put — or even cutting — comes from the growth side of the ledger. Statistics Canada data showed the economy contracted in both the fourth quarter of 2025 and the first quarter of 2026, meeting the informal definition of a technical recession. That was enough to have some economists warning the Bank had no room to raise rates at a...
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Bank of Canada may trail Fed rate cut as wage growth continues to soar

 

The Bank of Canada may not follow the Federal Reserve in cutting interest rates, despite the Canadian economy flirting with recession. This is due to high growth in Canadian wages and shelter costs, which could see the central bank shifting to interest rate cuts after the Federal Reserve. However, factors peculiar to Canada, such as declining productivity, record levels of immigration, and a relatively unionized workforce, could stand in the way of inflation returning to the Bank of Canada’s 2% target. Wage growth could be slow to ease as collective bargaining agreements lock in multi-year wage settlements. Analysts suggest that there should be more differentiation between the Fed and BoC rate paths than is currently priced.

The Canadian economy is facing a challenging time, with the Bank of Canada’s 2% inflation target still out of reach. The Bank of Canada may need to take a different approach to the Federal Reserve in order to achieve its goals. Wage growth in Canada is much higher than in the United States, which could make it difficult for the Bank of Canada to cut interest rates. However, analysts suggest that there should be more differentiation between the Fed and BoC rate paths than is currently priced. This could help support the Canadian dollar and delay a rebound in the economy, which would disappoint heavily indebted households, many of which are due to renew their mortgages at higher borrowing costs this year.

In conclusion, the Bank of Canada may trail the Federal Reserve in cutting interest rates due to high growth in Canadian wages and shelter costs. However, factors peculiar to Canada, such as declining productivity, record levels of immigration, and a relatively unionized workforce, could stand in the way of inflation returning to the Bank of Canada’s 2% target. Wage growth could be slow to ease as collective bargaining agreements lock in multi-year wage settlements. Analysts suggest that there should be more differentiation between the Fed and BoC rate paths than is currently priced.

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