Explained: Could the Fed’s rate hike impact Canada’s mortgage outlook?
Because Canadian government bond yields move in close correlation with their US counterparts, a US rate hike often pulls Canadian bond yields upward alongside it.
That matters because fixed mortgage rates in Canada are priced off Government of Canada bond yields, specifically the five-year yield. When bond yields climb, lenders pass that cost on to borrowers in the form of higher fixed rates. Bond yield pressure had already begun pushing fixed mortgage rates higher across Canada in September ahead of the Fed decision.
Variable-rate mortgages, by contrast, are tied to the Bank of Canada’s overnight lending rate and are generally less exposed to Fed moves — unless broader inflation or currency pressures force the Bank of Canada’s hand.
What the Bank of Canada is doing
The Bank of Canada held its policy rate steady at its announcement two weeks ago, with markets interpreting the decision as a signal that the central bank is monitoring inflation and global rate dynamics closely before moving again.
Canada’s economic path of softer growth, a stabilizing labour market, and inflation creeping back toward the 2% target has kept the Bank on a more cautious path than the Fed.
