The one-liner
The US just raised interest rates for the first time in three years, Canada pointedly did not, and the stock market celebrated by nearly hitting an all-time high, because markets contain multitudes.
Story 1: The Fed hikes, everyone pretends they didn't see it coming
On September 16, the Federal Reserve raised its benchmark rate a quarter point to 3.75%-4.00%. First hike since July 2023. Unanimous 12-0 vote, which in Fed terms is the equivalent of everyone agreeing on where to order lunch. New Chair Kevin Warsh's first hike, and he came out swinging: inflation is "too high and has been for too long," which is central-banker for "we are annoyed."
The numbers behind it: US inflation is running around 3.4%, the Fed's own forecast now has it at 3.7% for 2026, and the 2% target is starting to look like a New Year's resolution from 2021. Gas is $4.48 a gallon in the US, up about 40% from last year, thanks to the ongoing Middle East mess. The Fed also signaled another hike is probably coming, because nothing says "we're serious" like making holiday borrowing even more expensive. (US 30-year mortgages are already at 6.97%. Happy house hunting, everyone.)
Trump criticized the decision within hours and suggested it was political. A bold theory about a unanimous vote, but okay.
Story 2: Canada holds at 2.25% and side-eyes the US
Two weeks earlier, the Bank of Canada held its rate at 2.25% for the seventh straight decision, which is the monetary policy equivalent of hitting snooze. Governor Tiff Macklem basically said: our economy is fine (Q2 GDP grew 3.3%, unemployment ticked down to 6.4%), inflation is 3% but it's mostly just gas prices being rude, and we'd rather wait than move.
Then came the warning. Macklem said new US tariffs could drag fourth-quarter growth below 1%, and that the breakdown in Canada-US trade talks has businesses delaying investment and hiring on both sides of the border. The US slapped 50% levies on Canadian goods last month; Canada answered this month with dollar-for-dollar counter-tariffs. It's a trade war conducted entirely through press releases, and your grocery bill is caught in the middle.
The market's read: after the decision, markets were pricing about a 65% chance the BoC actually hikes before year-end. The era of "when will they cut?" is over. The new question is "wait, they might go UP?" For anyone renewing a mortgage: recent renewers are already absorbing about $375 more per month on average, per CMHC. The BoC is in no hurry to help.
Story 3: The TSX nearly hits a record while oil takes a nap
Through all of this, the S&P/TSX Composite closed Tuesday at 36,335, up 0.9% on the day and up 14.6% this year. It's about 1.7% below its all-time record from late August. The driver: banks. RBC, TD, BMO, Scotia, and CIBC all jumped between 1.4% and 1.8% on Monday as bond yields eased, because nothing makes bank stocks happy like the prospect of charging you more for longer.
Why did yields ease? Oil fell on hopes that US-Iran talks at this week's UN meeting might actually go somewhere. Iran reportedly offered to reopen the Strait of Hormuz within a week if the US eases military pressure. When oil drops, inflation fears cool, rate-hike fears cool, and bank stocks throw a little party. Energy stocks, meanwhile, took the hit: Canadian Natural down 2.2%, Suncor down 2.7%. The circle of market life.
South of the border, the S&P 500 finished basically flat at 7,764, the Nasdaq crept up 0.45%, and the Dow fell 0.36%. America looked at the Fed hike and said "we'll process this later," which is also what I say about my taxes.
The Canada angle
Here's the part that matters for your actual money. The loonie actually gained a bit after the BoC decision, which is the currency market's way of saying "Canada might hike too." A stronger loonie is nice if you're buying USD, less nice for the exporters sitting inside your index funds.
The bigger deal: the rate-hike odds flipping means the "cheap borrowing" era isn't coming back to save anyone. If your mortgage renews in the next year, the math you did in 2021 is ancient history. And those counter-tariffs? They show up as higher prices on American goods, which is inflation the BoC can't fix by moving rates. It's just more expensive groceries. The trade war's most reliable casualty is your produce aisle.
The US angle
Your XEQT or VEQT holds about 45% US stocks, so the Fed's hike lands directly in your portfolio. Higher US rates usually mean a stronger US dollar, pricier borrowing for American companies, and pressure on tech valuations. The Nasdaq still went up, because AI stocks have decided economics is optional.
The practical translation: the Fed hiking while inflation runs hot is the Fed saying "we'll risk slower growth to kill inflation." For long-term index investors, this is background noise. For anyone holding US growth stocks directly, it's a reminder that valuations and interest rates are mortal enemies, and right now rates have the high ground.
The takeaway
Three things, none of which involve day trading:
Don't trade the headlines. The TSX is near a record during a trade war and a rate hike. Markets are weird. Your automatic contributions don't care.
If your mortgage renews within a year, start shopping now. Talk to a broker about fixed vs. variable with fresh eyes, not 2021 eyes. 2021 you also thought sourdough was a personality.
Check your US exposure. Not to change it, just to know it. Open your brokerage app, look at what percentage of your portfolio is American, and notice how you feel about the Fed moving your money around. Awareness is the whole game.
One link worth your time
TD Economics: Bank of Canada holds at 2.25%, flags tariff risks — the clearest 3-minute read on what Macklem actually said and why markets now expect a hike.
Not financial advice, just a friend who reads central bank press releases so you don't have to. See you Sunday.