With the Fed eyeing December, tariffs, not rates, are holding Canada back

Same day, opposite reports

At 16:30 TRT on 6 November, labour data from the two neighbours landed in the same minute. US non-farm payrolls rose by 165,000 against an LSEG consensus of 65,000, and August and September were revised up by a combined 84,000. Canadian employment fell by 4,700 against expectations of a 13,600 gain, and unemployment rose from 6.5% to 6.7%.

Both reports landed on the desks of central banks that had raised rates in autumn 2026 to counter an energy shock. The Fed hiked in September and held in October; the Bank of Canada raised its rate by 25 basis points to 2.5% on 28 October. That gap now has the two boards, which meet on the same day on 9 December, looking in different directions.

Strong US hiring, weak hours

The US gain of 165,000 is more than three times the 48,000 monthly average of the previous 12 months. Average hourly earnings rose 0.4% on the month and 3.1% on the year. According to Fox Business, FedWatch odds of a December hike rose from 66.9% a week earlier to 76.8%. A 25 basis point move would take the policy range to 4–4.25%.

The number working part time for economic reasons rose by 339,000 to 4.84 million. U6, the broad unemployment measure that also counts underemployment, rose from 7.6% to 7.9%. investingLive attributes 356,000 of that rise to slack business conditions. If employers are keeping headcount but cutting hours, the 165,000 headline overstates the strength of demand.

AP reports petrol above 4 dollars a gallon, with wage growth of 3.1% trailing prices. It is that gap that is pushing the Fed towards December; the 165,000 headline merely removes the case for delay.

Tariffs are Canada's binding constraint

The private sector lost 53,000 jobs while the public sector added 50,000, and full-time employment fell by 18,100. Wholesale and retail trade shed 29,000 jobs. CIBC's Andrew Grantham said the weakness was spreading beyond tariff-exposed sectors. Wage growth eased from 2.3% to 2.2%.

This picture erodes the rationale the Bank of Canada gave on 28 October. The bank expected headline inflation to rise to about 3.5% by year-end, yet inflation excluding petrol was 2.2% in September and core measures were around 2%. The bank also wrote that new US tariffs would slow growth in the fourth quarter; its 2026 growth forecast is 1%.

In August the US imposed a 50% tariff on roughly 20 billion dollars of Canadian goods and did not extend the exemption for medium and heavy trucks. Carney said on 3 November that the US was asking less and offering more, but tariffs on steel, aluminium, cars and lumber remain in place. Ottawa's budget of 5 November projects a deficit of 62.3 billion Canadian dollars for 2026–27, so the fiscal side is also funding its buffer through borrowing.

The rate gap and the currency channel

According to investingLive, the US dollar rose on 6 November to its highest against the Canadian dollar since 20 October; the Bank of Canada's October report had assumed an exchange rate of about 71 US cents. If the Fed hikes on 9 December and Canada holds, the policy gap widens by another 25 basis points.

If the Canadian dollar falls below 71 cents, imported energy and goods become dearer and the inflation the bank wants to avoid returns. The only channel that could force a second Canadian hike is the currency, not the labour market. On the US side, the two-year yield rose 4.5 basis points to 4.52% while the ten-year fell 2.4 basis points to 4.86%; the curve is pricing tightening at the front end.

For Türkiye the channel is dollar funding costs: a Fed move on 9 December raises external financing costs for emerging-market borrowers. The 50% tariff on Canada shows that Washington is willing to use the tool against allies as well. Keystone XL entering the negotiations on 1 November shows that trade concessions are being swapped for energy infrastructure.