The newly published Governing Council deliberations show why six policymakers looked past 3% headline inflation — and what would change their minds.
The Bank of Canada interest rate decision of September 2, 2026 left the policy rate unchanged at 2.25%, and the central bank has now published the internal account of how six policymakers arrived there. The summary of Governing Council deliberations, released on September 16, describes a council that saw the economy and inflation tracking its July forecast almost exactly — while concluding that the two biggest risks hanging over that forecast had become sharper, not softer.
Those risks are familiar to anyone who has followed Canadian economic news this year: an unresolved war in the Middle East that is keeping oil, gasoline and diesel expensive, and a breakdown in trade negotiations with the United States that produced a fresh round of tariffs. Governing Council’s judgement was that neither had yet changed the inflation outlook enough to move the rate — but that both could.
Policy meetings began on August 25, 2026, chaired by Governor Tiff Macklem. Also in attendance were Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Nicolas Vincent, Michelle Alexopoulos and Marc-André Gosselin.
Why the Bank of Canada Interest Rate Decision Landed on No Change
The logic set out in the deliberations is essentially a balance-of-risks argument. On one side, the economy was still judged to be in excess supply, with a soft labour market that would normally argue for patience or easing. On the other, headline inflation had been sitting near the top of the Bank’s 1% to 3% control band since April, and the council concluded the chance of that spreading beyond fuel had risen.
Faced with both pressures pointing in opposite directions, members left the rate where it was and agreed the more important task was communication — specifically, making clear that monetary policy will ensure Canadians can continue to count on price stability through what the summary calls a period of upheaval.
Here are the headline figures cited in the deliberations:
| Policy interest rate | 2.25%, unchanged |
| Q2 GDP growth | 3.3%, slightly above expectations |
| CPI inflation | Hovering around 3% for several months |
| CPI excluding gasoline | 2.2% |
| Core inflation | Around 2% |
| Unemployment rate | Around 6.5% |
| Share of Canadian goods exports hit by new U.S. tariffs | Roughly 5% |
| Next rate announcement | October 28, 2026, with the Monetary Policy Report |
Bond Yields, Oil Expectations and a Firmer Loonie
Financial conditions had tightened since the July Monetary Policy Report. Long-term bond yields moved higher internationally as investors weighed sovereign debt levels and began pricing in the possibility that central bank policy rates would need to rise to restrain inflation. Canadian yields followed, though by less than in several other major advanced economies.
Market expectations for oil prices shifted up over the same period, while non-energy commodity prices were flat. The Canadian dollar appreciated slightly, mostly on the back of U.S. dollar weakness rather than domestic strength.
Globally, the picture members reviewed was uneven. The U.S. economy kept growing strongly on robust consumption and artificial-intelligence-related investment, with the AI boom supporting equity valuations and lifting spending among higher-income households — even as American inflation stayed above target, now driven more by gasoline and diesel than by the earlier tariff round. Euro-area growth beat expectations in the second quarter on exports and household spending, with natural gas prices adding to headline inflation. China was the outlier: weak second-quarter growth on lower export volumes and sluggish domestic demand, despite continued strength in its technology sector.
A 3.3% Rebound Quarter That Still Left the Economy in Excess Supply
Canadian GDP grew 3.3% in the second quarter, rebounding after two weak quarters and coming in slightly above expectations. Members noted the growth was broadening even after stripping out temporary factors that magnified the bounce: consumer spending was strong, exports and business investment picked up, and housing activity revived after a long stretch of weakness — although condominium markets in Toronto and Vancouver remained soft.
Job growth was solid in the data received since July, particularly in the private sector. Even so, the council agreed the labour market remained soft, pointing to an unemployment rate around 6.5% and subdued wage growth. Taken together, the indicators still described an economy operating below capacity, which is the central reason members were willing to look through inflation printing near 3%.
How New U.S. Tariffs Reshaped the Council’s Growth View
Members spent considerable time on what the new American tariffs — covering roughly 5% of Canadian goods exports to the United States — and the threat of further measures mean for the durability of the recovery. Their assessment was two-tiered: severe for the businesses and workers directly in the line of fire, but likely modest for the national economy as a whole, with fiscal measures expected to offset part of the hit.
The larger worry was confidence. The re-emergence of heightened trade uncertainty, the summary says, could dampen household spending, business investment and hiring well beyond the tariffed sectors, particularly if the dispute escalates. That uncertainty is one reason Ottawa’s diversification push has accelerated this year, including the European Commission’s offer of associate member status to Canada, which Prime Minister Mark Carney welcomed in Strasbourg.
On the Canadian side of the ledger, members concluded that counter-tariffs on U.S. imports would have a muted and drawn-out effect on consumer prices, because most apply to intermediate inputs such as steel and to goods with domestic substitutes.
The Strait of Hormuz, Refinery Margins and the Gasoline Question
The energy side of the debate was more pointed. With shipments through the Strait of Hormuz still curtailed and no sign of a resolution to the war, global oil prices stayed elevated and market expectations for future prices moved up. Refinery margins were unusually high as well, reflecting damage to both Middle Eastern and Russian refining capacity plus planned maintenance — a combination expected to persist.
Both factors feed directly into Canadian pump prices. The council’s key observation was that the damage has so far been contained: CPI excluding gasoline was 2.2% and core measures were around 2%, indicating little broad pass-through from fuel into other goods and services.
The qualifier matters more than the number. Members agreed that the longer gasoline and diesel stay expensive, the more likely that pass-through becomes — and that this has raised the upside risks to inflation. Trade actions on both sides of the border add to business costs that could reach consumer prices over time.
Where Members Diverged: Slack, Spillover and the Trigger for Action
The deliberations record genuine differences of view rather than a unified position. There was, in the Bank’s own wording, a diversity of views on the magnitude of economic slack given recent data, even though the council collectively judged the economy still to be in excess supply.
Members also held a range of views on how the new U.S. tariffs would affect growth, and whether resulting economic weakness would itself contain energy pass-through. The reasoning ran along two tracks:
- The containing case: with the economy in excess supply and the labour market soft, weaker growth from the trade conflict would keep inflationary pressure from broadening.
- The escalating case: if higher energy prices did spill into other CPI components, members agreed it could require a monetary policy response to stop broad-based inflation from taking hold.
That second sentence is the clearest signal in the document about what would end the hold. The council framed its stance as guided by the Bank’s inflation forecast and the risks around it, noting that any weakness in growth will be factored into that forecast alongside energy developments — language designed to address the tension supply shocks create between fighting inflation and supporting a weak economy.
What Governing Council Is Watching Before October 28
Two specific things, according to the summary: whether the economic recovery is sustained in the face of escalating U.S. tariffs, and whether energy inflation passes through to other goods and services. Members acknowledged several possible outcomes for both the trade file and the Middle East conflict, any of which could shift the balance of risks.
The next scheduled rate announcement is October 28, 2026, when the Bank will also publish its quarterly Monetary Policy Report — the first full refresh of its projections since July, and the document most likely to show whether the risks discussed in September have crystallised into forecast changes.
Frequently Asked Questions
What is the Bank of Canada’s policy rate right now?
The overnight policy rate remains at 2.25%, unchanged at the September 2, 2026 decision.
Why hold rates when inflation is near 3%?
Governing Council judged the economy was still in excess supply with a soft labour market, and that the inflation overshoot was concentrated in gasoline rather than spreading broadly — CPI excluding gasoline was 2.2% and core inflation around 2%.
What is a summary of Governing Council deliberations?
It is the Bank’s published account of the discussion among Governing Council members in the final stage of its decision process, after staff briefings and recommendations, released about two weeks after each rate announcement.
What would prompt the Bank to raise rates?
Members indicated that if high energy prices spilled over into the prices of other goods and services, a monetary policy response could be required to prevent broad-based inflation from setting in.
When is the next interest rate announcement?
October 28, 2026, alongside the release of the quarterly Monetary Policy Report.
