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What Warsh said, and what it did to the odds overnight
Kevin Warsh delivered his first Jackson Hole keynote as Chair of the Federal Reserve on Friday, August 28, his hundredth day in the job. Two things came out of it. The first was a policy philosophy: Warsh confirmed he intends to give markets far less explicit forward guidance about the path of rates, arguing that the old habit of signalling future moves tends to backfire. The second was a message on inflation. He said he was impressed by the economy’s overall strength, but concerned that underlying inflation trends have not improved, and put it plainly: the Fed has work to do.
The market heard the second part. Implied odds of a 25 basis point rate hike at the September 16 meeting jumped to roughly 60%, up from about 35% the day before. That is not a small repricing. A week ago the debate was about when the Fed would cut. Now the debate is about whether it hikes.
The data supports the concern, if not the certainty. July core PCE came in at 3.3% year over year, unchanged from June. Second-quarter US GDP held at 1.5% on the second reading. Initial jobless claims printed at 203,000 against a 208,000 consensus, and continuing claims at 1,778,000 against 1,790,000. That is an economy that is not breaking, with inflation that is not falling. Historically, that combination does not produce rate cuts.
What the Bank of Canada is walking into on Wednesday
Two days later, on Wednesday, September 2, Governor Tiff Macklem announces the Bank of Canada’s decision and holds a press conference. All 35 economists polled by Reuters expect a hold at 2.25%.
The case for holding is straightforward and uncomfortable. On one side, Canada just posted second-quarter GDP growth of 3.3% annualized, the fastest in more than three years, with business capital investment up 2.3% after five consecutive quarters of decline, and a first-quarter figure revised up from zero to 0.1%. The current account swung to an $8.8 billion surplus, the first since 2022 and the largest since 2005. The labour market improved in July. That is not an economy asking for stimulus.
On the other side, 50% American tariffs are live, Canadian counter-tariffs start September 8, and the second wave of US auto tariffs is scheduled for January. Every one of those is a growth headwind that has not yet appeared in the data. The expectation is that Macklem holds, leans against any market talk of hikes, and keeps an easing bias in reserve in case the trade damage arrives faster than the strong Q2 print suggests.
The gap, and why it is the number that reaches your kitchen table
Put the two together. The Fed’s target range is 3.50% to 3.75%. The Bank of Canada’s overnight rate is 2.25%. That is a spread of roughly 1.4 percentage points at the midpoint. If the Fed hikes on September 16 and the Bank of Canada holds, that spread widens toward 1.6 points, and it does so in a market that spent most of this year expecting the opposite.
Interest rate differentials are the primary driver of exchange rates. A wider gap in favour of the US dollar pulls capital toward US assets and pushes USD/CAD higher, which is another way of saying it makes every Canadian dollar you convert buy fewer American ones. For the moment the loonie is being supported by firmer crude and a softer greenback, trading below the 100-day moving average at 1.3917, but that support is thinner than a rate differential.
This is where the story stops being macroeconomics and starts being someone’s actual budget. A snowbird funding a Florida winter. A family paying US tuition in September. A retiree drawing from a 401(k) and an RRSP in the same year. An executive holding US-dollar compensation and Canadian expenses. Every one of those people is exposed to the same spread, and most of them have never planned around it explicitly.
What we would actually do this week
First, if you have a known US-dollar obligation in the next six months, tuition, a property closing, a scheduled draw, decide now what you are willing to pay and convert on a schedule rather than on a forecast. Nobody in this market has a reliable view on the next 25 basis points, including the people whose job it is to have one. Dollar cost averaging your conversions is the double Dutch approach: you do not need to time the rope perfectly, you just need to keep stepping in.
Second, look at your fixed income. A widening rate differential changes the relative appeal of Canadian and US bonds, and a household holding both is running a currency position whether or not they think of it that way. That position should be deliberate.
Third, do not extrapolate Wednesday. A hold is expected and mostly priced. The information will be in Macklem’s language, specifically whether he keeps the door to cuts open, and in whether the September 16 Fed decision goes the way the futures market now expects. Two data points do not make a trend, and a broken clock is right twice a day.
The useful posture here is not prediction. It is having a written plan for what you do at a few different exchange rates, so that when one of them arrives you are executing rather than deciding.
Frequently asked questions
When is the next Bank of Canada interest rate decision?
Wednesday, September 2, 2026, with a press conference from Governor Tiff Macklem. All 35 economists surveyed by Reuters ahead of the decision expected a hold at the current overnight rate of 2.25%.
Is the US Federal Reserve going to raise interest rates in September 2026?
It is not decided. Following Chair Kevin Warsh’s Jackson Hole speech on August 28, futures markets priced roughly a 60% probability of a 25 basis point increase at the September 16 meeting, up from about 35% the day before. Warsh has explicitly said he will not give advance guidance.
What is the current gap between Canadian and US interest rates?
The Federal Reserve’s target range is 3.50% to 3.75% and the Bank of Canada’s overnight rate is 2.25%, a spread of about 1.4 percentage points at the midpoint. If the Fed hikes in September and the Bank of Canada holds, that spread widens toward 1.6 points.
How does the interest rate gap affect the Canadian dollar?
Interest rate differentials are a primary driver of currency movements. When US rates rise relative to Canadian rates, capital tends to flow toward US assets, which strengthens the US dollar against the loonie. Practically, a wider gap means each Canadian dollar converts into fewer US dollars.
When should I convert Canadian dollars to US dollars?
Rather than trying to pick a level, most cross-border households are better served by converting on a schedule tied to their actual obligations, such as tuition dates or a property closing. Spreading conversions over time removes the need to be right about the next central bank move.
Why does a cross-border household need to watch two central banks?
Because the two rates together, not either one alone, determine the exchange rate that prices your spending, your withdrawals, and your cross-border transfers. A household with income in one country and expenses in the other is exposed to the spread between them, not to either policy rate in isolation. This article is general information and not investment advice.
Sources: Raymond James, “the Open” (subscription client newsletter, no public URL) | Federal Reserve Board, keynote remarks by Chairman Warsh https://www.federalreserve.gov/newsevents/speech/warsh20260828a.htm | CNBC https://www.cnbc.com/2026/08/31/jackson-hole-fed-chair-kevin-warsh-hawkish-rate-hikes-analysts.html | CNBC https://www.cnbc.com/2026/08/28/kevin-warsh-jackson-hole-federal-reserve-inflation.html | BNN Bloomberg https://www.bnnbloomberg.ca/business/economics/2026/08/31/bank-of-canada-set-to-grapple-with-renewed-trade-war-pressures-in-rate-decision/ | The Globe and Mail https://www.theglobeandmail.com/business/article-bank-of-canada-expected-to-hold-rates-steady-as-trade-war-escalates/ | CBC https://www.cbc.ca/news/business/canada-gdp-june-2026-9.7323847 | Statistics Canada, Balance of International Payments Q2 2026 https://www150.statcan.gc.ca/n1/daily-quotidien/260827/dq260827a-eng.htm | FactSet (subscription data service)
This article is for general informational purposes only and reflects market conditions as of August 31, 2026. It is not investment, tax, or legal advice, and it does not account for your personal circumstances. Sartorial Wealth specializes in cross-border financial planning between Canada and the United States, and as a dual-registered firm we do not prepare tax returns. Markets and currency levels move quickly, and the figures cited may have changed since publication. Please speak with a qualified advisor before acting on anything here.
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