Markets Run on Certainty. Right Now, We Don't Have Any
- 4 days ago
- 3 min read
What the Bank of Canada Actually Said
On September 2, 2026, the Bank of Canada held its overnight policy rate at 2.25 per cent. On the surface, that suggests stability. No change, no drama. But looking beyond the headline number, the Bank's statement tells a more uncertain story.
The Bank pointed to a broad-based recovery in the Canadian economy, while also warning about several headwinds that could slow that recovery. Growth is projected at a modest 0.7 per cent this year, with the Bank expecting a rebound to 1.8 per cent in both 2027 and 2028. That forecast depends on several factors going in the right direction.
Inflation is where much of the uncertainty lies. The Bank highlighted growing upside risks from two key areas. The ongoing conflict in Iran is putting pressure on refinery capacity and pushing gasoline prices higher. At the same time, newly announced tariffs between Canada and the United States are putting pressure on businesses and increasing the possibility that higher costs will eventually be passed on to consumers.
For now, core inflation remains close to the Bank's 2 per cent target. This is one of the main reasons the Bank may look through the temporary impact of higher oil prices and hold the policy rate at 2.25 per cent through the rest of 2026.
However, "for now" is important. Improving labour market conditions and steady core inflation could eventually create room for rate increases, potentially bringing the policy rate toward 2.75 per cent. That outlook also depends heavily on what happens in the United States.
The Real Source of the Uncertainty
For anyone making a five or ten year decision, whether that means buying a rental property, signing a commercial lease or planning a business expansion, the biggest variable may not actually be in Canada. It is the political and economic climate in the United States.
Markets can price in a recession or a rate hike. What is harder to price in is unpredictable policy. Tariffs can change, trade relationships can be renegotiated and geopolitical conflicts can create unexpected pressure on energy prices and supply chains. That is the environment North America is in right now, and it is not a temporary weather pattern we're waiting out. It is, at least for the foreseeable future, the climate itself.
The bond market is already reflecting some of this uncertainty. Elevated inflation in the United States is increasing expectations of a possible Federal Reserve rate hike this fall. Those expectations are putting upward pressure on five-year bond yields, which are closely tied to fixed mortgage rates in Canada.
This means Canadian homeowners, buyers and property investors can feel the effects of economic and political uncertainty in the United States, even when nothing has changed directly in Canada. That is what it means to be economically integrated with a neighbour whose policy direction has become genuinely difficult to forecast.
What Certainty Actually Requires
Market confidence is not restored by one strong jobs report or a single quiet Bank of Canada announcement. It comes from consistency. Businesses and households need to be able to make decisions based on policies and economic conditions they can reasonably anticipate.
Right now, that consistency is difficult to find. Until conditions become more predictable, forecasts from the Bank of Canada will continue to come with an important caveat: conditions may be stable today, but they remain dependent on forces outside Canada's control.
That does not mean there is reason to panic. It means there is reason to be realistic.
Today's rate hold can be viewed as the Bank maintaining flexibility while it waits to see how the economy develops. For anyone making a decision that will last for years, such as renewing a mortgage, purchasing a property or making a business investment, the current environment highlights the importance of preparing for a longer period of uncertainty rather than assuming conditions will quickly return to normal.
Markets will eventually regain their confidence. The question is how long that will take?
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