The U.S. Federal Reserve raised interest rates to a minimum of 3.75%, the first increase in three years, potentially pressuring the Bank of Canada to raise borrowing costs for Canadians soon. Economists suggest that while Canadian interest rates aren’t directly tied to U.S. moves, the strengthening of the U.S. dollar and weakening of the Canadian dollar could influence future rate decisions by the Bank of Canada. The current divergence in key lending rates—2.25% in Canada compared to 3.75% in the U.S.—may also add pressure on the loonie and borrowing costs for businesses, as a weaker Canadian dollar can lead to higher inflation due to increased import prices.
Written locally by qwen2.5:14b on 2026-09-17,
using this article's own text rather than the other coverage of the
same event (that is the story summary below).
Story summary
The Federal Reserve is expected to raise interest rates by 25 basis points, increasing them from 3.75% to 4%, during its meeting on September 16, 2023, according to the CME Group's FedWatch tool which predicts a near 90% likelihood of this hike. This decision comes amid soaring inflation and pressure from global economic factors such as rising oil prices, which surged past $100 per barrel due to conflicts in the Middle East. Despite President Donald Trump urging lower interest rates, financial markets strongly anticipate the rate increase, leading Fed Chair Kevin Warsh to potentially face criticism from both sides. This move is seen as necessary to curb inflation but could also negatively impact homebuyers and those seeking loans or credit cards, given that affordable borrowing options might become less accessible.
Written for “Fed Interest Rate Hike” on 2026-09-18,
grounded in this article and the 43 other(s) covering the same event.
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The U.S. Federal Reserve hiked interest rates for the first time in three years on Wednesday, and several economists say this could add pressure on the Bank of Canada to raise borrowing costs for Canadians sooner than later.
uncertain
this → hike → Canadians
Canadian borrowing rates aren’t directly tied to changes made by the U.S. Fed, but there are some ripple effects, including changes to the loonie, which could influence future changes.
uncertain
which → tie → changes
Derek Holt, economist and vice president at the Bank of Nova Scotia, said in a statement on Wednesday that he would be surprised if the U.S. rate hike doesn’t “add one more ingredient to pave the way” for Bank of Canada Governor Tiff Macklem to begin hiking soon.
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Macklem → say → Canada
Central banks, like the Fed and the Bank of Canada, aim to maintain the balance of their economies by ensuring inflation stays within a sustainable range (usually between one and three per cent), while also keeping borrowing rates low enough to allow the economy to grow.
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economy → aim → rates
The main way they strike that balance is by adjusting benchmark interest rates, and Canadians and businesses alike could wind up paying more to borrow money and take out mortgages and other loans if the Bank of Canada hikes its key rate.
uncertain
Bank → strike → rate
Canada’s consumer inflation has been hovering around three per cent through July and August, while U.S. inflation was last reported at 3.4 per cent.
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inflation → hover → cent
One of the main reasons the Bank of Canada could move to raise interest rates is if inflation gets too high, and a weaker Canadian dollar in the face of a stronger U.S. dollar can risk inflation rising in Canada.
uncertain
inflation → move → Canada
That’s because the currency diversion makes imported goods more expensive in Canada.
asserted
goods → ’ → Canada
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When the Fed’s rate announcement happened on Wednesday afternoon, the U.S. dollar increased in value, which sent the Canadian dollar’s equivalent value down by more than a quarter of a cent almost instantly.
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which → get → cent
Doug Porter, chief economist at the Bank of Montreal, says although that’s a relatively small drop, if the trend continues, then the Bank of Canada may lean more towards raising rates, like the Fed did.
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Fed → say → rates
“Were the Canadian dollar to soften a little bit more, it would put a bit of pressure on the Bank of Canada to possibly follow the Fed.
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it → soften → Fed
But I don’t think we’re close to being there yet.”
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we → think → ?
The Fed’s new benchmark sits at minimum 3.75 per cent, while the Bank of Canada’s is 2.25 per cent.
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Bank → sit → Canada
That divergence in key lending rates could also add pressure to the Canadian dollar because of the difference in borrowing costs, especially for businesses.
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divergence → add → businesses
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NDP → deny → moratorium
CPP Investments and Brookfield just launched a $50B Maple Fund.
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Investments → launch → Fund
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shoppers → expect → discounts
“They’re more than a percentage point and a half higher, so we’re starting off at much, much lower rates,” says Porter.
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Porter → ’re → rates
“Perhaps those really low interest rates in Canada are not sustainable for long if inflation stays at three per cent.
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inflation → stay → cent
But the Fed’s rate hike could affect Canadian borrowing costs even without a Bank of Canada rate hike, and that’s because of recent bond market jitters.
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that → affect → jitters
Bonds yields, or the interest they pay out to owners of those bonds, increases or decreases depending mostly on supply and demand.
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they → pay → supply
If there is less confidence in the U.S. government to rein in inflation, then U.S. government bond owners may sell those bonds because of the perceived risk.
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owners → be → risk
U.S. bond yields have been spiking recently, especially since the start of September, and higher interest rates and inflation typically leads to higher bond yields.
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rates → spike → yields
“We are seeing slow but steady upward pressure in longer-term interest rates, like say a five-year mortgage rate.
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We → see → rate
They have been rising because of the pressure that we’re seeing on these bond yields.”
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we → rise → yields
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