January 28, 2026
Bank of Canada and Federal Reserve Hold, Moving to the Sidelines for Now
Key Summary Points
- The Bank of Canada (BoC) and Federal Reserve (Fed) held policy rates steady.
- Governor Macklem pointed to elevated uncertainty around the USMCA review as clouding the monetary policy outlook.
- Chair Powell struck a balanced tone, acknowledging stabilization in the labour market while remaining constructive on the inflation outlook.
- Powell largely avoided answering politically charged questions, reaffirming that policy will remain data dependent.
USMCA Review Clouds BOC Policy Outlook
The BoC left its overnight rate unchanged at 2.25%, the lower bound of the Bank’s estimated range for the neutral rate (2.25%-3.25%).
The statement continued to indicate that the “current policy rate remains appropriate”, and reiterated that “if the outlook changes, we are prepared to respond”.
January’s Monetary Policy Report (MPR) and updated forecasts for GDP growth and inflation were published alongside the decision. These were revised modestly lower for 2026 (Q4 on Q4 basis).
Notably, the BoC’s forecasts assume a largely status quo extension of USMCA. A renewed trade agreement with the U.S. is expected, but the process may be uneven and likely involve some renegotiation. The BoC cites this as a key downside risk for economic growth.
Fed Joins the BOC on the Sidelines
The Federal Reserve also held rates steady in the target range of 3.50%-3.75%, as expected.
Fed Chair Powell justified the hold citing recent data developments showing: 1) solid economic activity and 2) a stabilization in the labour market.
On the inflation outlook, Powell also struck a constructive tone, noting that tariff effects on goods should ease through the course of 2026.
Ultimately, the Chair concluded that downside risks to employment and upside risks to inflation have both diminished but stopped short of assessing relative magnitudes.
What's Next?
Guidance from both the BoC and Fed underscored a data-dependent stance.
BoC Governor Macklem stated that “elevated uncertainty makes it difficult to predict the timing or direction” of the next move. In our view, the balance of risks points to no policy change this year.
Fed Chair Powell reaffirmed a data-dependent stance, saying the Fed is “well positioned to let the data speak to us”. With tariff-driven goods inflation expected to peak in the middle of the year, a development Powell noted would allow the Fed to loosen policy, we see scope for rate cuts in the second half of the year.
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About the Author
Neil Shankar is CI Global Asset Management’s Economist, responsible for monitoring key macroeconomic trends and shaping CI GAM’s economic outlook. He actively participates in investment and asset allocation discussions, helping guide decision-making.
A leading contributor to CI GAM’s Capital Insights publication, Neil shares in-depth perspectives on evolving economic conditions. He also frequently engages with stakeholders throughout the organization and externally, helping to deepen understanding of the economic landscape. He is regularly quoted in the press for his views on the economy and markets.
With over 10 years of industry experience, Neil joined CI GAM in 2024 after holding similar roles at other major Canadian financial institutions. Neil holds an MA in Business Economics from Wilfrid Laurier University and a BA (Honours) in Economics from The University of Western Ontario.
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