Warsh Takes Office Amid Inflation Fears

The Bank of Canada is not insulated from the Federal Reserve's moves under its new chair, Kevin Warsh. The Fed's policy rate sits between 3.50% and 3.75%, while the Bank of Canada's is at 2.25%. This 125-150 basis point gap puts pressure on our dollar, making imported goods more expensive for Canadian consumers.

The effects of a changing guard at the Fed are already visible in Canada. In the first quarter of 2026, over 37,000 Canadians filed for insolvency, up 8.5% from a year earlier and the highest quarterly number since the 2009 financial crisis.

Credit tightening is hitting the real economy, affecting mortgage lending to provincial borrowing costs. Warsh wants an entirely new framework for measuring inflation and to dramatically shrink the Fed's balance sheet, which has ballooned from $800 billion to roughly $6.7 trillion.