The Bank of Canada raised rates into a falling jobs market. It lifted its overnight rate by 25 basis points to 2.5% on 28 October 2026, according to Ghana News Agency, which carried a Xinhua report. CP24 reported that the economy shed a net 68,300 jobs in September. The move was the first hike since July 2023, Reuters reported, in a copy on Al Jazeera, and it was widely expected.
Governor Tiff Macklem made the Bank's case in one sentence: "With the outlook for inflation substantially higher and the economy showing resilience, an increase in the policy rate is needed." The Bank of Canada said it acted to lower the chance that high energy costs feed into prices across the economy, and that inflation had been near 3% since April. Reuters said the inflation was driven almost solely by energy and energy-related transportation costs. The Bank projects inflation to average 3% in 2027.
Core inflation is where that case is thinnest. The Bank itself says core measures remain close to 2%. Andrew Grantham of CIBC Capital Markets told Reuters: "We don't expect that core measures of inflation will accelerate as much as the bank fears." Earl Davis of BMO Global Asset Management said: "So, we see this hike as a pre-emptive hike." He told CP24 it was likely too early. Ontario Premier Doug Ford, on X, said: "Higher rates won't get oil moving through the Strait of Hormuz or lower tariffs on Canadian businesses."
Macklem did not close the door on more. "There could be a need to increase the policy rate further, but given uncertainties, we will proceed carefully," he said. Tu Nguyen of RSM Canada expects the next hike "as early as December" and called the Bank's tone "decidedly hawkish".
Keynes is the awkward authority here. David Henderson's Econlib biography presents A Tract on Monetary Reform (1923) as arguing that a central bank should respond when prices tend to rise or fall. On that test the Bank has a case, because prices are moving. But the General Theory (1936), in Henderson's words, urged "deficit spending during economic downturns to maintain full employment". That is a fiscal prescription, and nothing we have opened shows Keynes setting a rule for when to tighten.
Our reading: the hike passes the 1923 test and does not yet answer the 1936 worry. The Bank is betting on a spillover of energy costs that its own core measure, close to 2%, does not show, and it is placing that bet while employment falls.
Ottawa is not alone in facing this choice. We examined the Bank of England's rate rise against an energy shock last week, and the market case for gridlock is a reminder of how closely policy bets are watched.
Watch for: whether core inflation moves away from 2% before December, and whether Macklem's "proceed carefully" survives another jobs report.
Cover image: the atrium of the Bank of Canada building, Ottawa. Photo: Robert Linsdell, CC BY 2.0, via Wikimedia Commons.
_(9450301964).jpg?ref=philocrux.com){kind=link}