Bank of Canada to Get Back to Work October 22, 2026

Higher energy prices and geopolitical tensions will push the Bank of Canada and the Federal Reserve toward additional near-term rate hikes despite resilient but uneven economic growth.

• Middle Eastern energy exports have recovered to about 80% of pre-war levels, but tanker shortages should keep crude prices elevated, with oil expected to end 2026 near US$80 per barrel.
• The US economy remains resilient: real GDP growth for the first half of 2026 was revised slightly higher, third-quarter annualized growth is expected to exceed 3%, and household spending, artificial-intelligence investment and inventories are supporting activity.
• Canada's third-quarter real GDP is forecast to grow by roughly 2.0% annualized, while the Productivity Mega Deduction is expected to lift business investment by about 1% annually from 2027 to 2030 and real GDP by approximately 0.1%.
• Canada's economic outlook has improved modestly, but trade tensions and elevated energy prices remain headwinds; Quebec's 2026 growth is forecast at 0.4%, while Ontario benefits from stronger first-half activity but faces weakness in goods, housing and tariff-exposed industries.
• Desjardins now expects a Bank of Canada rate hike at the end of October 2026 and another in January 2027, plus one further Federal Reserve hike before year-end; it also expects USDCAD near 1.42 over the next few months rather than the previous 1.38 year-end forecast.

Takeaway: Investors should prepare for higher-for-longer policy rates and persistent inflation risks, while recognizing that an escalation of the Iran or Ukraine conflicts, additional tariffs, rising bond yields or an AI-led equity correction could cause a much sharper global slowdown.