Ottawa Raised and Washington Waited. Sox Called Both the Other Way, and Here Is What the Two Statements Say
The Bank of Canada lifted its policy rate to 2.5 per cent on Wednesday, its first increase since July 2023, with core inflation near 2 per cent. Six hours later the Federal Reserve held at 3.75 to 4 per cent by ten votes to two, with core inflation at 2.6 and rising. Sox argued for a Canadian hold and an American hike. The banks did the reverse.
The Bank of Canada raised its target for the overnight rate by 25 basis points to 2.5 per cent on Wednesday morning. Governor Tiff Macklem said the Governing Council had weighed hold against hike and set out both cases. For holding: CPI inflation excluding gasoline is still 2.2 per cent, core measures remain close to 2 per cent, slack remains and new US tariffs will weigh on growth. For raising: energy prices are higher and expected to stay higher, imported input costs are rising, firms that have absorbed costs so far are telling the Bank's surveys they will pass them on, and a recovering economy removes the downward pressure that would offset them. "An increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation," he said. Inflation is now expected at about 3.5 per cent by year end and at or above 3 per cent through much of 2027. "There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully."
At 2pm Eastern the Federal Open Market Committee held its range at 3.75 to 4 per cent, where it has sat since September's rise, by ten votes to two. Governor Lisa Cook, whom the President is seeking to remove, and Cleveland's Beth Hammack dissented in favour of a quarter point. The statement described domestic spending as resilient, said inflation "remains elevated", and replaced September's line about a timelier return to target with a new one: "The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2 percent goal. The Committee will deliver price stability." Chair Kevin Warsh, who has said he dislikes forward guidance, largely read the statement back to reporters. Futures priced an 87.5 per cent chance of a rise at the 8 to 9 December meeting, up from 73 per cent on Tuesday. The 10-year Treasury yield sat above 5 per cent.
The two decisions leave the Anglosphere's central banks at a curious junction.
From the analysisSox's record on the two should be stated plainly. On 19 October this desk argued that the Bank of Canada had the strongest case in the Anglosphere for sitting still, with core at 1.8 per cent, 68,000 jobs lost in September and unemployment at 6.5 per cent, and that a rise would be the first by a G7 central bank with its own core measure below target. On 14 October it argued the Fed would and should move on 28 October, because two consecutive 0.3 per cent core prints with airline fares, used cars and lodging all rising meant the energy shock was already leaking. Canada hiked with core near 2. The Fed held with core at 2.6. Both decisions were widely expected by the time they arrived, which does not make either of them right.
Macklem's argument is the stronger of the two, and it is the one Sox underweighted: pass-through. The Bank's surveys showed more than 40 per cent of firms facing unusual cost increases planning to raise prices within a year, and household five-year expectations at 3.91 per cent, the highest since 2022. A central bank that waits for pass-through to show up in core is choosing to act after the fact. Macklem said there was "less scope for monetary accommodation", which is a way of saying that 2.5 per cent sits at the bottom of the Bank's neutral range and that Wednesday's move takes back a cut rather than imposing restraint. That is a smaller step than the headline suggests and a reasonable answer to an inflation forecast that has moved a full point in three months.
The Fed's hold is harder to defend on the Fed's own terms and easier to defend on everyone else's. Core PCE is running at 3.4 per cent on the September projections, the committee's median already assumes one more rise this year, and two voters wanted it now. The reason to wait is written in the calendar: the midterms are in six days, the President has said the United States should have the lowest rates in the world, and he is in court trying to remove one of the two dissenters. A December rise, after the election and with October's CPI in hand, costs the committee six weeks and buys it the appearance of independence it would otherwise have to assert. We think that trade is worth making once, and that the new sentence about accumulating information is the Fed telling markets exactly that.
The two decisions leave the Anglosphere's central banks at a curious junction. Canada has raised with core below target. The United States has paused with core above it. Australia, with underlying inflation at 3.7 per cent after Wednesday's print, is priced to raise on Tuesday, and Britain decides on 5 November with inflation at 3.5 per cent and a Budget that trims measured prices while adding a £100 payment to demand. The common thread is an oil shock from the Strait of Hormuz that none of them can touch, and the question each board is answering is how long its own public will believe that 3 per cent is temporary. The Bank of Canada decided on Wednesday that the answer in Canada was: not much longer.
The Semaform
On 28 October the Bank of Canada raised its policy rate by 25 basis points to 2.5 per cent, citing a substantially higher inflation outlook and rising cost pass-through, while the Federal Reserve held its range at 3.75 to 4 per cent by a 10 to 2 vote with two dissents in favour of a rise, six days before the US midterm elections.
Macklem's pass-through argument is the one Sox underweighted and a 2.5 per cent rate is still accommodative, so the Canadian rise is defensible; the Fed's pause is a one-time purchase of visible independence ahead of the election, and December should settle it.
Critics of the Bank of Canada say raising rates with core inflation near 2 per cent and unemployment at 6.5 per cent risks a recession to fight an imported fuel price; critics of the Fed, including the two dissenters, say core inflation at 2.6 per cent and rising left no case for waiting.
Sources
- Bank of Canada, Monetary Policy Report Press Conference Opening Statement, Governor Tiff Macklem, 28 October 2026
- Bank of Canada, Monetary Policy Report, October 2026
- Federal Reserve, Federal Reserve issues FOMC statement, 28 October 2026
- Reuters, Fed holds rates steady as it awaits 'accumulation of more information', 28 October 2026
- CNBC, Fed holds rates steady despite concerns over inflation, 28 October 2026
- Euronews, Fed holds rates days before US midterms as two officials push for another hike, 28 October 2026
- BNN Bloomberg, Bank of Canada raises interest rate as inflation projected to worsen, 28 October 2026
- CP24 / Canadian Press, Bank of Canada raises key interest rate, says another hike possible, 28 October 2026
- Sox News, Canada's Core Inflation Is 1.8 Per Cent. Markets Are Pricing a Rate Rise Anyway, 19 October 2026
- Sox News, September's 3.7 Per Cent Is a Petrol Number. The 0.3 Underneath It Is the Fed's Problem, 14 October 2026
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