Rate Decisions Unpacked: What the Bank of Canada and Fed Hold Means for Your Money

January 28, 2026

Today brought double the central bank news, and for Canadians watching their wallets, it's a story of caution and uncertainty. Both the Bank of Canada (BoC) and the U.S. Federal Reserve held their interest rates steady, but the reasons behind these decisions reveal deeper economic crosscurrents that could shape your financial life in the months ahead.

Let's break down what happened, why it matters, and what it means for your mortgage, savings, and overall financial plan.

The Big Picture: Both Central Banks Hit Pause

Bank of Canada: Held the overnight rate at 2.25% (announced 9:45 AM ET)

Federal Reserve: Held the federal funds rate at 3.5%–3.75% (announced 2:00 PM ET)

On the surface, these holds signal that both central banks believe current rates are "about right" for now. But dig deeper, and you'll find two very different narratives.

Monetary Policy Update: Bank of Canada and U.S. Federal ReserveThe Bank of Canada has opted to maintain its current interest rates, signaling a pause in its monetary policy. Meanwhile, the U.S. Federal Reserve is also holding steady, indicating a similar approach. This reflects a shared decision to keep rates unchanged amid varying economic conditions in both countries.

Bank of Canada: Walking a Tightrope Through Trade Turmoil

Governor Tiff Macklem made it clear: uncertainty is the name of the game. The BoC has held rates since December 2025, after cutting aggressively through 2024 and early 2025 (a total of 275 basis points from the 5.0% peak in June 2024).

Why They're Holding

The BoC sees the current policy rate as appropriate based on their economic outlook but (and it's a big but) the central bank emphasized that "heightened uncertainty" makes it difficult to predict the timing or direction of the next rate change.

Translation: They genuinely don't know whether the next move will be a cut or a hike.

Key factors driving the hold:

Inflation sitting near target: CPI inflation hit 2.4% in December 2025, up from 2.2% in November. However, this bump is largely due to base-year effects from last winter's GST/HST holiday, when you strip out those distortions, inflation has actually been slowing. Core inflation measures have eased from 3% in October to around 2.5% in December.

Labour market showing mixed signals: Unemployment rose to 6.8% in December (from 6.5% in November) as 81,000 people entered the workforce looking for jobs. Employment itself barely budged, adding just 8,200 jobs. While more people job-hunting can signal optimism, it also reveals slack in the labour market.

Trade war creating economic whiplash: U.S. tariffs on Canadian steel, aluminum, autos, and lumber have hit those sectors hard. The BoC projects modest growth of just 1.1% in 2026 and 1.5% in 2027 as Canada adjusts to the "new global trade landscape."

CUSMA review looming: The upcoming review of the Canada-U.S.-Mexico Agreement (CUSMA) in 2026 is creating uncertainty for businesses. Most Canadian exports currently benefit from tariff exemptions under CUSMA, but if that changes, the economic impact could be severe.

What the Bank of Canada Said

In Governor Macklem's words: "While Council judges the current policy rate is appropriate based on our outlook, the consensus was that elevated uncertainty makes it difficult to predict the timing or direction of the next change."

Senior Deputy Governor Carolyn Rogers added: "Just when we think we've thought of everything that could possibly hit us, something new happens."

Navigating Economic Choices: A family stands at a crossroads, pondering the implications of inflation, unemployment, tariffs, CUSMA review, and interest rates on their future.

Federal Reserve: Patience After a Cutting Spree

The Fed has also hit pause after cutting rates three times in 2024–2025 (September, October, and December). Unlike the BoC, which cited uncertainty about future moves, the Fed's statement suggests they're leaning toward staying on hold for a while.

Why They're Holding

Inflation remains sticky: U.S. inflation is running closer to 3% than the Fed's 2% target. While off the 40-year highs of 2022, price pressures remain "somewhat elevated," according to the Fed's statement.

Job market stabilizing: The Fed noted that "job gains have remained low, and the unemployment rate has shown some signs of stabilization." This suggests the labour market isn't overheating, but it's not collapsing either, giving the Fed room to wait.

Trump tariffs adding inflationary pressure: The Fed is navigating Trump's aggressive tariff policies, which economists generally see as adding near-term upward pressure on prices. However, Fed economists expect these pressures to ease later in 2026.

Political backdrop: The Fed is also dealing with unprecedented political pressure, including President Trump's recent comments about potentially naming a new Fed chair to replace Jerome Powell. Two Trump-appointed governors (Stephen Miran and Christopher Waller) even dissented at this meeting, advocating for another rate cut.

What the Federal Reserve Said

The FOMC statement noted: "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

This language, inserted in December and repeated now, signals a shift away from the easing cycle that began in September 2025. Markets are now pricing in at most two rate cuts in 2026 and none in 2027.

The Tariff Factor: How Trade Wars Are Reshaping the Economy

You can't talk about these rate decisions without understanding the elephant in the room: U.S. tariffs.

What's Happened So Far

February 2025: Trump announced sweeping tariffs, 25% on most Canadian imports and 10% on energy products

March–August 2025: Multiple rounds of escalation, with the blanket tariff rising to 35% by August

September 2025: Canada removed most retaliatory tariffs (except on steel, aluminum, copper, and autos)

Current status: Most Canadian goods (about 95%) still benefit from CUSMA exemptions, but key sectors face steep tariffs

Economic Impact

According to various estimates:

Job losses: Quebec alone could lose up to 100,000 jobs from tariffs

Recession risk: The Canadian economy could enter recession within six months if tariffs persist and CUSMA exemptions end

Consumer prices: Both Canadian and American consumers are paying more for goods

Trade diversion: Canadian businesses are pivoting toward non-U.S. markets

Tourism collapse: Canadian travel to the U.S. dropped 40% in early 2025

The Bank of Canada projects that tariff-related cost pressures will be roughly offset by excess supply in the economy, keeping inflation near target. But this is a delicate balancing act, and the outcome hinges on factors beyond the BoC's control.

What This Means for Your Money

Mortgages

Variable-rate mortgages: Your rate is tied to the BoC's policy rate, so today's hold means no immediate change. With the BoC signaling uncertainty about future moves, you should prepare for potential volatility, rates could go up or down depending on how the economy evolves.

Fixed-rate mortgages: These follow bond yields more than the overnight rate. If you're coming up for renewal in 2026, experts suggest 5-year fixed rates may decline by about 0.4% as bond yields ease. However, uncertainty could keep rates elevated.

Bottom line: If you have a variable-rate mortgage, consider whether you can handle potential rate increases if the economy strengthens or inflation persists. If you're locking in, shop around — this environment rewards patience.

Savings and Investments

High-interest savings accounts (HISAs): With the BoC rate at 2.25%, expect savings account rates to remain in the 3.5%–4.5% range for now. If the BoC cuts again, these rates will drift lower.

GICs: 1-year GIC rates are hovering around 3.5%–4.0%. Longer-term rates reflect expectations of stable or slightly lower rates ahead. If you believe rates will fall, locking in a 3–5 year GIC now might make sense.

Bond market: Bond yields have held in the 2.9% range following moderate inflation reports. If you're invested in bond funds, stability in rates should provide some relief after the volatility of recent years.

Employment and Wages

Job market: With unemployment at 6.8% and hiring intentions muted, the job market remains challenging, especially for young Canadians (13.3% youth unemployment in December, down from a 15-year high of 14.7% in September).

Wages: Average hourly wages rose 3.4% year-over-year in December, cooling slightly from 3.6% in November. With inflation at 2.4%, real wage growth remains positive but modest.

If you're job hunting, focus on resilient sectors like healthcare (added 21,000 jobs in December) while trade-sensitive sectors like manufacturing remain under pressure from tariffs.

Spending Power

With inflation still above target and wages growing modestly, your purchasing power is holding steady, but it's not improving dramatically. The temporary GST/HST cut that lifted some prices last year is creating statistical noise, but the underlying trend shows inflation cooling.

Action step: Review your budget to ensure you're not overspending on imported goods subject to tariffs or counter-tariffs. Consider buying Canadian where possible, not just for patriotic reasons, but because domestic goods may be more price-stable in this environment.

The Big Questions for 2026

Will the BoC Cut or Hike Next?

Economists are split. Most forecast the BoC will hold through at least the first half of 2026, with some calling for two potential hikes by year-end if the economy strengthens. Others argue the case for further easing remains weak given current conditions.

The biggest wildcard? The CUSMA review. If negotiations go poorly and tariff exemptions disappear, Canada could face a sharp economic downturn, prompting rate cuts. If negotiations succeed and trade normalizes, the BoC might even consider modest hikes to keep inflation in check.

What About the Fed?

The consensus is that the Fed will remain on hold for much of 2026, with possibly one or two cuts later in the year. However, persistent inflation could keep rates higher for longer than markets expect.

For Canadians, this matters because a higher U.S. rate environment tends to put downward pressure on the Canadian dollar, making imports more expensive but exports more competitive.

How Will Tariffs Evolve?

Trump's tariff policies remain unpredictable. Recent data shows the U.S. is beginning to feel pain from tariffs (inflation on consumer staples, supply chain disruptions), which could soften the administration's stance. But political factors could also drive further escalation.

Watch for: The CUSMA review process, which is scheduled for 2026 and could determine whether tariff exemptions continue, are reduced, or disappear entirely.

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What You Can Do Right Now

1. Review Your Debt Strategy

If you have variable-rate debt, model scenarios where rates rise or fall by 0.5%–1.0%. Can you handle higher payments? If not, consider locking in or accelerating debt repayment.

2. Build Your Emergency Fund

With economic uncertainty elevated, aim for 3–6 months of expenses in a HISA or short-term GIC. This buffer protects you if the job market deteriorates or unexpected expenses arise.

3. Reassess Your Investment Mix

Diversification matters more than ever. Consider whether your portfolio is overly exposed to trade-sensitive sectors (manufacturing, export-heavy industries) and rebalance toward defensive sectors (utilities, healthcare) or international diversification.

4. Lock In Savings Rates

If you're holding cash, shop around for the best HISA or GIC rates before potential rate cuts reduce yields further. Even a 0.5% difference in rate can mean hundreds of dollars over time.

5. Stay Informed

Central bank policies are data-dependent, meaning they can shift quickly. Set reminders for the next BoC rate announcements:

• March 18, 2026

• April 29, 2026 (with Monetary Policy Report)

6. Support Canadian Businesses

If tariffs persist, Canadian businesses face headwinds. Where practical, prioritize Canadian-made products, this supports local jobs and may offer more stable pricing.

The Bottom Line

Today's rate holds from both the BoC and Fed reflect central banks trying to navigate an unusually complex economic moment. Inflation is cooling, but not fast enough. Labour markets show resilience, but pockets of weakness. And the looming shadow of trade wars creates uncertainty no model can fully capture.

For Canadians, this means one thing: stay flexible.

Don't overextend yourself financially assuming rates will only go down. Don't panic assuming they'll only go up. Instead, build resilience into your financial plan through diversification, emergency savings, and smart debt management.

The one certainty? Change is coming. Whether that change brings rate cuts to ease borrowing costs or rate hikes to fight inflation depends on forces well beyond our control, from tariff negotiations in Washington to inflation data in Ottawa.

But here's what is in your control: how prepared you are when that change arrives.

Let's get money-wise together — because in uncertain times, smart planning matters more than ever.

Quick Reference: Key Rates and Data

Bank of Canada overnight rate: 2.25% (held January 28, 2026)

Federal Reserve funds rate: 3.5%–3.75% (held January 28, 2026)

Canadian inflation (CPI): 2.4% (December 2025)

Canadian unemployment rate: 6.8% (December 2025)

Canadian wage growth: 3.4% year-over-year (December 2025)

BoC inflation target: 2%

Next BoC announcement: March 18, 2026

Sources: Bank of Canada official statements (January 28, 2026), Federal Reserve FOMC statements (January 28, 2026), Statistics Canada Labour Force Survey (January 9, 2026), CPI data (December 2025), various economic analysis from RBC, TD Economics, BMO, and Bloomberg.

Have questions about how these rate decisions affect your personal finances? Drop a comment below or reach out at @themoneywise.ca. We're here to help you navigate these uncertain times with confidence.