If you're Canadian and you found this page because you searched "Fed rate," "FOMC" or "US interest rate" in the last few hours, you're not alone. Search interest in U.S. monetary policy spikes across Canada every time the Federal Reserve announces a decision, and today's announcement was a bigger deal than usual — because it went the opposite way to what most people had assumed for the past two years.
But here's the thing a lot of coverage gets wrong, and it matters enormously for your finances: the Federal Reserve does not set Canadian interest rates. The Bank of Canada does, independently, based on Canadian conditions. Today's move does not automatically change your mortgage payment.
What it does do is shift the financial environment Canada operates in. Let's walk through exactly how — and how much.
What the Fed actually did, and why
The Federal Open Market Committee (FOMC) had held the federal funds rate at 3.50%–3.75% since December 2025, most recently at its July 29 meeting. Today it moved up a quarter point.
The driver is inflation that hasn't cooperated. U.S. headline CPI came in at 3.4% year-over-year in August 2026, unchanged from July and still comfortably above the Fed's 2% target. Core CPI — stripping out food and energy — ran at 2.4%. Meanwhile the U.S. labour market has held up: August payrolls rose by roughly 162,000.
Adding pressure is the energy shock connected to the war with Iran, which has kept fuel costs elevated across both economies. Fed Chair Kevin Warsh had already signalled at the Jackson Hole symposium in late August that underlying inflation was not slowing to his satisfaction, which is largely why markets had priced this hike as the likely outcome going in.
Canada's rate did not change — and the gap is now substantial
The Bank of Canada held its policy rate at 2.25% on September 2, 2026. That was its seventh consecutive hold. The Bank Rate sits at 2.50% and the deposit rate at 2.20%.
So as of today, here is where the two countries actually stand:
| Indicator | 🇺🇸 United States | 🇨🇦 Canada |
|---|---|---|
| Central bank | Federal Reserve | Bank of Canada |
| Policy rate | 3.75%–4.00% | 2.25% |
| Latest decision | +25 bps (Sept 16) | Hold (Sept 2) |
| Headline inflation | 3.4% (Aug) | 3.0% (Aug) |
| Unemployment | ~4.1% range (Aug) | 6.4% (Aug) |
| Inflation target | 2% | 2% |
| Next decision | Oct 27–28, 2026 | Oct 28, 2026 |
The spread between the two policy rates is now roughly 1.50 to 1.75 percentage points, depending on whether you measure from the bottom or top of the Fed's target range. That is a meaningful divergence between two deeply integrated economies.
Why the two central banks are going in different directions
This is the part worth understanding, because it explains why you shouldn't expect the Bank of Canada to simply follow the Fed.
Canada's inflation picture looks superficially similar — 3.0% headline in August, unchanged from July — but the composition is very different. Almost all of the overshoot is gasoline. Canadian gas prices were up 22.8% year-over-year in August. Strip gasoline out and consumer prices rose just 2.4%. The Bank of Canada's preferred core measures — median and trimmed-mean CPI — were running at roughly 2.0% and 1.9% respectively. That is essentially on target.
And Canada's labour market is visibly weaker than America's. The economy shed 42,000 jobs in August, badly missing expectations for a modest gain. The unemployment rate held at 6.4% — well above the U.S. level — and annual wage growth cooled to just 2.0%, down from 2.8% in July.
In a coincidence of timing, the Bank of Canada also published the summary of deliberations from its September 2 meeting today, at 1:30 p.m. ET — thirty minutes before the Fed announcement. Those deliberations show Governing Council flagging genuine upside risks to inflation: the continuing war keeping energy prices elevated, and renewed tariffs on Canadian exports to the U.S. But they also note that underlying inflation has so far held near target despite the energy shock.
Translation: the Bank is watching carefully, but it is not signalling an imminent hike. Treat any headline claiming otherwise with scepticism.
What this means for the Canadian dollar
This is the most direct transmission channel, and probably the real reason search interest spikes.
Higher U.S. rates tend to make U.S.-dollar assets relatively more attractive, which supports the greenback. Heading into today's decision, USD/CAD had been climbing, touching roughly 1.3935 on September 16 — around a one-month low for the loonie.
At approximately 1.39, that works out to:
- US$1 ≈ C$1.39
- C$1 ≈ US$0.72
A weaker loonie has real, immediate consequences for Canadians:
- Cross-border travel costs more. A US$2,000 trip costs roughly C$2,780 at 1.39.
- Imported goods cost more. Much of what Canadians buy — vehicles, electronics, produce in winter — is priced in or influenced by U.S. dollars.
- It is mildly inflationary. A weaker currency imports price pressure, which is precisely one of the risks the Bank of Canada is monitoring.
- Canadian exporters benefit. A cheaper loonie makes Canadian goods more competitive abroad.
Will this raise your Canadian mortgage rate?
Short answer: not directly, and not automatically. But the two mortgage types behave differently.
Variable-rate mortgages
These track your lender's prime rate, which moves with the Bank of Canada's policy rate. The Bank held at 2.25% on September 2 and its next scheduled announcement is October 28. Today's Fed decision does not change Canadian prime. If you're on a variable rate, nothing mechanical happened to your payment today.
Fixed-rate mortgages
These are priced off Government of Canada bond yields — particularly the 5-year — plus a lender spread. Canadian bond yields are influenced by global capital markets, and U.S. Treasury yields are the largest single influence in that pool. So there is an indirect channel: Fed policy shifts U.S. yields, which can pull Canadian yields, which can eventually feed into fixed mortgage pricing.
But the transmission is partial, delayed, and frequently offset by Canadian-specific factors. A 25-basis-point Fed hike absolutely does not translate into a 25-basis-point move in Canadian fixed mortgage rates.
If you want to see how a rate change would actually affect your own numbers rather than guessing, run them through our Canadian Mortgage Calculator, which uses the semi-annual compounding required under Canada's Interest Act.
What it means for savers and GIC holders
Canadian deposit products — high-interest savings accounts, GICs, money-market funds — are priced within the Canadian financial system. Their main anchor is the Bank of Canada's rate and Canadian bond yields, not the Fed's.
With the BoC holding at 2.25% and core inflation near 2%, Canadian savers are in a broadly neutral position: nominal returns on cash are modest but no longer badly negative in real terms. U.S.-dollar deposit products will now offer higher nominal yields — but any Canadian holding them takes on currency risk, which can easily swamp the yield advantage in either direction.
What it means for Canadians invested in U.S. markets
If you hold U.S. equities in an RRSP or TFSA, your return has two moving parts: the performance of the underlying asset, and the CAD/USD exchange rate.
When the loonie weakens, the Canadian-dollar value of your U.S. holdings rises even if the U.S. share price hasn't moved. When the loonie strengthens, the reverse happens. This is why a Canadian investor's returns on U.S. holdings frequently diverge from the headline S&P 500 number — and it's a large part of why Canadians pay attention to Fed decisions even when their portfolio is otherwise domestic.
What to watch next
- Fed guidance and projections. The Fed's updated projections point toward the possibility of one further increase in 2026, but individual policymakers differ and everything remains data-dependent. Nothing is guaranteed.
- October 28. The Bank of Canada's next rate announcement — notably, essentially the same day as the Fed's next decision on October 27–28.
- Canadian gasoline prices. The single biggest swing factor in Canadian headline inflation right now. If energy prices ease, Canada's 3.0% headline rate falls quickly toward core.
- Canadian jobs data. After August's 42,000-job loss, the next Labour Force Survey matters a great deal for the Bank's thinking.
- USD/CAD. A sustained move well past 1.40 would start meaningfully importing inflation into Canada.
Frequently asked questions
Did the Bank of Canada raise interest rates today?
No. The Bank of Canada held its policy rate at 2.25% on September 2, 2026, and its next scheduled announcement is October 28, 2026. Today's increase was made by the U.S. Federal Reserve and applies to U.S. rates only.
Does the Fed control Canadian interest rates?
No. The Bank of Canada sets Canadian monetary policy independently. The Fed's decisions can influence Canadian financial conditions indirectly — through currency markets, bond yields and trade — but the Bank of Canada is under no obligation to follow, and right now it clearly isn't.
Why is the Bank of Canada's rate so much lower than the Fed's?
Because the underlying economies differ. Canada's unemployment rate is 6.4% versus roughly 4% in the U.S., Canada shed 42,000 jobs in August, and Canada's inflation overshoot is concentrated in gasoline rather than being broad-based — core measures are near 2%. The Bank has less reason to tighten.
Will my variable mortgage payment go up because of this?
Not from this decision. Variable rates in Canada follow lender prime, which follows the Bank of Canada's policy rate. That rate did not change today.
Should I lock into a fixed rate now?
That depends entirely on your own situation — your risk tolerance, how long you plan to stay in the home, your renewal date and your cash-flow needs. This isn't a question anyone can answer generically, and we're not licensed to advise you. Model both scenarios with real numbers and, if the decision is significant, speak with a licensed mortgage broker or financial advisor.
What does a weaker Canadian dollar mean for me day to day?
Mainly that U.S. travel, U.S. online purchases and imported goods get more expensive. At roughly 1.39, every US$100 you spend costs about C$139.
Run your own numbers
Rate headlines are noise until you apply them to your actual mortgage, income or savings. Our free Canadian calculators do exactly that — no sign-up, nothing collected.
Mortgage Calculator →The bottom line
The Federal Reserve raised U.S. rates to 3.75%–4.00% today — its first hike since 2023 — because U.S. inflation is stuck at 3.4% in an economy that is still adding jobs. Canada's policy rate remains at 2.25%, because Canadian core inflation is near target and the labour market is losing jobs.
The practical impact on most Canadians today is through the currency, not through their mortgage. The loonie near 1.39 makes U.S. spending more expensive and adds a modest inflationary nudge. Your variable mortgage payment did not change. Your fixed-rate pricing may drift over time through bond markets, but not mechanically and not immediately.
The date that actually matters for Canadian borrowers is October 28.