This is an account of the deliberations of the Bank of Canada’s Governing Council leading to the monetary policy decision on June 10, 2026.
This summary reflects discussions and deliberations by members of Governing Council in stage three of the Bank’s monetary policy decision-making process. This stage takes place after members have received all staff briefings and recommendations.
Governing Council’s policy decision-making meetings began on June 4, 2026. The Governor presided over these meetings. Members in attendance were Governor Tiff Macklem, Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Nicolas Vincent, Michelle Alexopoulos and Marc‑André Gosselin.
International economy
Governing Council began deliberations by discussing recent developments in the global economy.
The conflict in the Middle East was in its fourth month, and its impact on the global economy had increased. Higher energy prices had pushed up inflation worldwide and global growth looked to have slowed, with weaker gross domestic product (GDP) growth in the Gulf region and many oil-importing countries, such as those in the euro area and Asia. Governing Council members also discussed broader disruptions to shipping and to the supply chains for several commodities. Oil reserves were reported to be dwindling in some countries. Some new supply lines were being developed to avoid the bottleneck in the Strait of Hormuz, but these would take some time to become operational. There was also more evidence of disruptions to supplies of fertilizer and other petrochemical products.
Members agreed that the longer the war dragged on, the greater the risk of higher global inflation and slower world growth.
Members also discussed the role of investment in artificial intelligence (AI) in supporting economic growth. This was particularly evident in the United States. AI investment was also supporting growth elsewhere, considerably boosting activity in some Asian economies such as South Korea and Taiwan.
In the United States, the combination of strong AI-related investment, a buoyant stock market and growing energy exports were all supporting economic activity. The economy grew 1.6% in the first quarter and growth was expected to pick up in the second quarter. Members discussed whether the strength in the US economy was broad-based, or whether surging investment in some sectors and consumption by higher-income households were masking softness elsewhere in the economy.
Members considered various possible outcomes of the Middle East conflict. The war could end decisively, which would lead to a significant easing in oil prices. Or the war could escalate again, causing another jump in oil prices and continued uncertainty. A third possibility was that the ceasefire continued and some arrangement was worked out to allow the Strait of Hormuz to reopen but, in the absence of a peace agreement, uncertainty remained elevated. If that happened, members agreed there could be some easing in oil prices from current highs, but oil would likely continue to trade above pre-war levels.
Members reviewed recent financial conditions. In the United States, equity markets had hit record highs in the weeks leading up to the policy interest rate decision, and the market for initial public offerings was strong. Prices for technology stocks continued to be sensitive to news and market expectations about the pace of AI development. US bond yields had risen on strong macroeconomic data and some commentary from US Federal Reserve governors about the path for interest rates. In Canada, financial conditions had loosened, with strength in equity markets and little change in bond yields. Members noted that the Canadian dollar has depreciated against the US dollar, reflecting weaker economic data and market expectations that the gap between Canadian and US interest rates could be more persistent than previously anticipated.
Canadian economy and inflation outlook
Members discussed recent economic data releases, particularly Canada’s national accounts for the first quarter, the labour market statistics for May and the April consumer price index (CPI).
GDP edged down 0.1% in the first quarter, well below the 1.5% growth projected in the April Monetary Policy Report. The biggest surprise was a 2.5% decline in government spending, mainly driven by a large quarterly drop in spending on weapons systems. Members noted that government spending patterns can be choppy from one quarter to the next. Consumer spending grew by 1.4%, and consumption per person was up 2%, suggesting that households remained resilient. Housing activity, however, declined further, reflecting both heightened uncertainty and slower population growth. While exports declined in the first quarter, imports rose strongly as businesses rebuilt their inventories.
Members agreed that recent data pointed to a resumption of growth in the second quarter. The flash estimate for April GDP suggested the economy expanded 0.4% month-over-month. Exports rose 0.2% in April, largely driven by energy exports because of higher oil prices, but exports of motor vehicles and machinery and equipment also showed solid gains. Other data suggested that consumer spending is continuing to grow and that housing activity is stabilizing. Businesses have been indicating some pickup in investment and hiring intentions. Overall, members agreed that the economy appeared to be returning to growth.
The labour market data for May showed an unexpected jump in employment, pulling the unemployment rate down to 6.6%. While the increase in employment was welcome, Governing Council members noted that employment data had been volatile. Employment was little changed since the start of the year, and the unemployment rate had been fluctuating in a range of 6½% to 7%.
Members agreed that, taken together, the economic data suggested that not a great deal had changed since the Council’s last decision in April. The war in the Middle East was ongoing and the review of the Canada-United States-Mexico Agreement (CUSMA) on trade was still an important source of uncertainty. Over the 12 months ending in the first quarter of 2026, economic activity had been roughly flat, albeit with quarterly volatility. Members agreed that the economy was weak; it was still operating in excess supply and there was slack in the labour market. But the economy was not clearly in recession. While the economy shrank in the fourth quarter of 2025, GDP growth was barely negative in the first quarter of 2026, and more than half of industries recorded some growth. Members agreed that a recession is characterized by a deep, widespread and persistent decline in aggregate economic activity.
The Bank had anticipated CPI inflation would rise to around 3%, and it increased to 2.8% in April. This reflected gasoline price increases and higher margins, and the fact that last April’s elimination of the consumer carbon tax had fallen out of the 12-month rate of inflation. Members were of the view that, outside of energy prices, inflationary pressures were generally contained. There was limited evidence of pass-through of higher energy prices to other goods and services. Measures of core inflation had trended down—CPI-trim and CPI-median were both close to 2% in April—and the proportion of CPI components rising faster than 3% declined, moving closer to its historical average. Although food inflation remained elevated, it had come down and rent inflation had slowed further. New Bank survey data was not available, but the first-quarter Business Outlook Survey suggested that near-term inflation expectations had ticked up with the rise in global oil prices, while medium- and longer-term expectations appeared well-anchored.
Members debated how durable and widespread the impact of higher oil prices would be. They agreed they would need to monitor incoming data to gauge how the rise in energy prices was feeding through to other costs and being passed on to consumer prices.
Considerations for monetary policy
Governing Council members agreed the economic situation presented a dilemma for monetary policy.
- The economy was weak and continued to operate below its potential, but lowering interest rates to support growth would increase the risk that inflation remains high and, in turn, becomes embedded in pricing behaviour and inflation expectations.
- Raising interest rates in response to higher energy prices would reduce the risk of seeing broad pass-through of higher energy prices to other goods and services but would further weaken the economy.
In responding to the rise in inflation, Governing Council did not want to overreact, but nor did it want to be too slow to respond. If the Bank were to raise rates to combat higher inflation and oil prices came back down quickly, by the time higher interest rates were affecting the economy, they would not be needed. But if higher oil prices persisted and spread, and the Bank held the policy rate for too long, the eventual monetary policy response would have to be more aggressive than if it had acted earlier.
For the time being, members were prepared to look through the near-term impacts of higher energy prices on inflation. But they noted that existing disruptions to supply chains and an uncertain resolution to the Middle East conflict meant that backlogs and bottlenecks could persist. If the inflation data began to show evidence that inflation pressures were spreading or becoming more persistent, it would be a signal that monetary policy tightening is warranted.
Members also noted that the outlook for trade remained uncertain. CUSMA negotiations had begun, and a favourable outcome could restore some certainty and potentially boost investment. If negotiations are prolonged and particularly if the outcome is unfavourable, hardship in trade-affected sectors could deepen and spread, and the effects on jobs and investment could be felt more broadly through the Canadian economy.
Policy decision
Governing Council members agreed that holding the policy interest rate unchanged at 2¼% at the June rate decision balances the risks described above. However, uncertainty is unusually elevated and the risks could shift. They therefore agreed it was important to reiterate the different possible paths for monetary policy.
If the United States imposes new trade restrictions, the policy interest rate may need to be cut to support growth. Alternatively, if the conflict in the Middle East continues and higher energy prices lead to ongoing generalized inflation, consecutive increases in the policy rate may be warranted. It is also possible that both risks could materialize at the same time. Monetary policy will need to remain nimble.
Governing Council considered these and other possible outcomes, bearing in mind that other structural changes are also at work in the economy, such as shifting trade relationships, the adoption of AI and changes in demographics. All of these have implications for the economy and for inflation. Governing Council agreed to emphasize in its communications that the Bank remains ready to respond to changing economic circumstances to fulfill its commitment to price stability.
