The Fed held rates — hours after the Bank of Canada hiked. Here's what the split means for Canadians.

The decision

The Federal Reserve held interest rates steady on Wednesday, Oct. 28, keeping its benchmark rate in the 3.75% to 4% range, Reuters reported. The vote was 10–2, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favour of a quarter-point hike.

The hold pauses a renewed tightening campaign that began with a quarter-point increase in September, the Fed's first rate rise since 2023. In its statement, the central bank upgraded its view of the economy to "expanding at a strong pace," noting resilient domestic spending, strong productivity growth and robust capital investment, with job gains keeping pace with the workforce and unemployment little changed.

Why the Fed waited

Inflation remains the sticking point. U.S. consumer prices rose 3.7% year over year in September, up from a 2.4% pace in February before the Iran war, with prices climbing 0.3% month over month in both August and September, according to reports of the data. "Inflation remains elevated," the Fed said, adding that accumulating more information would help it determine the policy stance needed for a timely return to its 2% goal.

The market reaction was ultimately positive: the Dow rose 97.53 points to 52,475.10, the S&P 500 gained 21.37 points to 7,743.97 and the Nasdaq rose 72.04 points to 26,549.85, Reuters reported, while the 10-year Treasury yield rose to about 5.05%. Markets price in a strong chance of one more 25-basis-point hike in December, according to market pricing reads.

What it means for Canada

The decision landed hours after the Bank of Canada raised its own policy rate to 2.50% — its first hike since July 2023 — so the two central banks are now moving in different directions, at least for now. For Canadian borrowers, that means no help from south of the border: variable mortgage rates here follow the Bank of Canada, not the Fed, and the Bank's morning move points the other way.

For the loonie, the split cuts the other way: a hiking Bank of Canada against a pausing Fed is, all else equal, supportive for the Canadian dollar, which traded around 1.4040 per U.S. dollar shortly after the Bank's announcement, according to Kitco. The dissents matter too: with two officials already voting for a hike, the Fed's pause reads as a wait for more data, not a declaration that tightening is done.

What happens next

Fed Chair Kevin Warsh told reporters after the decision that the central bank has made clear its willingness and readiness to act, while describing the economy as not running too hot and inflation as still too high, Reuters reported. The Bank of Canada's final decision of 2026 comes Dec. 9, and August GDP lands Friday, Oct. 30.