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Assessing the US and Canadian neutral rates: 2026 update

Author

Listed:
  • Felipe Alves
  • William Beaudoin
  • Hélène Desgagnés
  • Wei Dong
  • Jan David Schneider
  • Eugene Trostin
  • Argyn Toktamyssov
  • Hannes Twieling

Abstract

This paper presents Bank of Canada staff’s current assessment of the US and Canadian neutral rates of interest. The neutral rate is where the Bank expects the policy rate would settle once output is at its long-run potential level and inflation is at target, after the effects of all cyclical shocks have dissipated (Mendes 2014). The Bank does not target the neutral rate, but this is an important input for its economic projections. We assess the Canadian nominal neutral rate to be in the range of 2.25% to 3.25%, unchanged from our assessment in 2025. We assess the US nominal neutral rate to be in the range of 2.50% to 3.50%, somewhat higher than the range of 2.25% to 3.25% reported in the 2025 assessment. In Canada, lower long-term population growth offsets higher long-term productivity growth. In the US, the revision is explained by a stronger outlook for potential output growth.

Suggested Citation

  • Felipe Alves & William Beaudoin & Hélène Desgagnés & Wei Dong & Jan David Schneider & Eugene Trostin & Argyn Toktamyssov & Hannes Twieling, 2026. "Assessing the US and Canadian neutral rates: 2026 update," Staff Analytical Papers 2026-21, Bank of Canada.
    • Handle: RePEc:bca:bocsap:26-21
    DOI: 10.34989/sap-2026-21
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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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