March 19, 2026
Bank of Canada and Federal Reserve Stand Pat as Middle East Conflict Cloud Outlook
KEY SUMMARY POINTS
- The Bank of Canada (BoC) and Federal Reserve (Fed) held policy rates steady.
- Governor Macklem pointed to elevated uncertainty around the conflict in the Middle East, which has broadened the range of possible outcomes.
- Fed Chair Powell also emphasized that the implications from developments in the Middle East for the U.S. economy are uncertain.
- The median projection for the fed funds rate in the Fed’s Summary of Economic Projections (SEP) continued to point to one 25 bps cut in 2026.
MIDDLE EAST CONFLICT CLOUDS BOC POLICY OUTLOOK
As expected, the BoC left its policy rate unchanged at 2.25%. Communications emphasized elevated uncertainty around the conflict in the Middle East.
Governor Macklem, conceded that it is “too early to assess the impact of the war on growth in Canada”, noting that the conflict has “broadened the range of possible outcomes”.
Taking stock of economic data since the January meeting, the Governor concluded that activity has fallen short of expectations, pointing to soft labour market data and ongoing weakness in exports.
Against this backdrop, he noted that “with inflation close to target and the economy in excess supply, the risk that higher energy prices quickly spread to the prices of other goods and services looks contained”.
FED ALSO ON THE SIDELINES FOR NOW
The Fed also held rates steady, maintaining the target range at 3.50%-3.75%. Like the BoC, the statement acknowledged the uncertainty around developments in the Middle East and their implications for the outlook.
In the press conference, Fed Chair Powell emphasized that “it is too soon to know the scope and duration of the potential effects on the economy”.
Alongside the decision, the Fed released an updated SEP. Both growth and inflation projections were revised higher. The median projection for the fed funds rate continued to point to a single 25 bp cut in 2026, although the distribution of the dots shifted modestly in a slightly hawkish direction. The median projection for the Fed’s neutral estimate was also revised up.
WHAT’S NEXT?
Guidance from both the BoC and Fed underscored a data-dependent stance amid elevated uncertainty around the conflict in the Middle East.
The BoC is likely to remain on hold despite upside risks to headline inflation from higher energy prices. Indeed, the economy remains in excess supply and trade uncertainty continues to weigh on the growth outlook.
The Fed also appears to be firmly on the sidelines for now, focused on whether goods disinflation and diminishing tariff pass-through keep broader inflation contained despite higher energy prices near-term.
GLOSSARY OF TERMS
GPD: Gross Domestic Product
Q4: October–December
USMCA: United States–Mexico–Canada Agreement. The trade agreement replacing NAFTA. Its review and renegotiation can create uncertainty for trade-reliant economies like Canada’s.
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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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© CI Investments Inc. 2026. All rights reserved. Published March 18, 2026
