December 10, 2025 - No change to the Bank of Canada Rate
The Bank of Canada maintained their rate today, which means there will be no change to variable rates. On the other side of the border, the Federal Reserve lowered their key interest rate by 0.25%.
As you can see in the chart of the 5 year Government of Canada bond yield above, which is the basis for 5 year Canadian fixed mortgage rates, the last couple of days have seen a large amount of volatility as traders bought and sold bonds based on expectations and results.
Leading up to the announcements, yields rose after 2 days of ups and downs which followed an upward spike in bond yields following the unexpected employment data released on December 5 (see article below for details).
Overall, yields finished lower for the day.
The Bank pointed to the Canadian economic growth as stronger than expected considering domestic demand remained flat in the third quarter. The Bank expects domestic demand to grow slightly in the fourth quarter while coupled with a decline in net exports. It is the opinion of the Bank that GDP growth is expected to be weak, but may pick up in 2026, although uncertainty remains high and much volatility in economies and markets is expected.
The Bank sited that “Employment has shown solid gains in the past three months and the unemployment rate declined to 6.5% in November. Nevertheless, job markets in trade-sensitive sectors remain weak and economy-wide hiring intentions continue to be subdued.”
The Bank pointed out that inflation statistics may come in higher than expected as data related to last year’s GST/HST holiday leaves the annual inflation statistics, yet they expect CPI to remain around the 2.00% level.
December 8, 2025 - Latest Employment Data, and the Impact on Fixed Rates
On Friday December 5, more surprising employment data was released, showing that Canada had added 54,000 new jobs to the Canadian economy, bringing the unemployment level down to 6.5%.
Immediately after the release of the data, Government of Canada bond yields, which are the basis for fixed Canadian mortgage rates, spiked upward as traders sold bonds due to the market expectation of unemployment rising to 7%, rather than falling to 6.5%. The upward spike clearly indicates that bond traders had not fully scrutinized the data to see what the increase in employment will actually have on the Canadian economy since it was, as Statistics Canada states in the first line of the release, “driven by gains in part-time work”. These are minimum wage positions that were “concentrated among youth aged 15 to 24.”
Many young Canadians today live in the reality of what is called “the gig economy” where young workers who have recently completed their education work 2 to 3 part time jobs to either make ends meet or to save for the possibility of one day having enough for a down payment on a home. One individual working 3 part-time jobs distorts the statistics in a manner which makes it appear that 3 Canadians have employment, yet it is just one individual holding 3 jobs.
Jobs in health care and social assistance also increase, and although these consist of many full-time positions, health care and social assistance are largely government funded by taxpayer money, and do not lead to the type of growth to expand the Canadian economy.
Offsetting these gains in employment were large losses of positions in wholesale and retail trade.
As you can see in the chart, Canadian employment is still much lower than it had been in previous years, and an unemployment rate of 6.5% is certainly no reason for celebration.
Due to the increase in bond yields, fixed mortgage rates have risen since the announcement, however the overall outlook for Canadian and global economy remain the same… the price of oil continues its downward trend due to cooling consumer spending which has lessened the demand for shipping and manufactured goods, slowing GDP growth, and wage stagnation which has fallen way behind the rate of inflation over past years.
Although this will certainly provide a reason for the Bank of Canada to keep their key interest rate unchanged at this month’s meeting, further cuts by the Bank are expected in 2026. Markets are widely predicting that the Bank of Canada will be holding rates steady on December 10, so this factor should already be “baked into” the current bond yield levels, however we shall need to wait to see what happens. Aside from the Bank’s meeting on December 10, Canada’s inflation statistics will be released on December 15, which will be the next data to move bond yields.
Nov. 17, 2025 - Inflation Falls!
Inflation statistics for the month of October was down to 2.20% year over year, compared with 2.40% the previous month.
The price of food items actually fell from the previous month, which has not happened for a long time and will mean some relief for the ever-growing number of Canadian families living paycheque to paycheque.
A large contributor to the fall in inflation was the price of gasoline which fell close to 5% from the previous month.
Most other items, including the price of shelter, rose by fairly insignificant amounts, creating a landscape of price stabilization in Canada.
Despite the recent jobs data, which showed Canada added jobs to the economy (although most were part-time and likely attributable to the Blue Jays world series final) the fall in inflation paves the way for another cut by the Bank of Canada in their December meeting.
Canadian Federal Budget and Economic Outlook for Interest Rates
The Federal Budget is scheduled to be released Tuesday, November 4, which may provide a clearer picture of where interest rates are heading in the long term.
Interest Rates and Inflation
Despite inflation rising to 2.40% in September, it remains below the Bank of Canada's maximum comfort range of 3.00%. This allowed the Bank of Canada to lower the key interest rate on October 29, bringing down variable rate mortgages. Aside from the possibility of rising inflation, the current state of the Canadian economy does not point to economic expansion, which means rates should continue to fall going forward.
Unemployment Crisis
Unemployment in Canada is staggeringly high. Overall unemployment stands at 7.10%, while Canada's largest city, Toronto, is experiencing 8.90% unemployment. These figures reflect a labor market under significant strain.
Economic Contraction
GDP statistics show that Canada's economy is shrinking. The latest data reveals that GDP contracted by 0.30% in August—lower than it had been five months previously. This trend could continue as business losses from tariffs, layoffs, and high unemployment further deteriorate the Canadian economy.
CIBC Deputy Chief Economist Benjamin Tal recently addressed an audience of Canadian mortgage professionals, stating: "We are in a recession. If it's not a formal recession, it's a per capita recession for sure — especially if you live in Ontario and B.C."
The Affordability Crisis
Rising prices for food and shelter remain a major concern for Canadian households. Over the past five years, cumulative inflation on both food and shelter has been approximately 27%, contributing to some of the higher interest rates seen in recent years. Meanwhile, wages have increased by an average of only 5% during the same period. This includes the roughly 16% wage growth seen in public administration, education, and health care. As a result, the private sector—which makes up about 78% of Canada's workforce—is being severely strained at an unsustainable rate.
Tuesday's budget must address these issues because the current state of the private sector workforce has reached a crisis point. The private sector is, after all, the source of tax revenue for government wages and spending. Unless significant efforts are made to lower food and housing costs—such as eliminating taxes on food and reducing interest rates to bring down shelter expenses—the outlook for Canada's economy could be severely detrimental.
Why Canada's Private Sector Is Underperforming
The root causes of Canada's economic decline relative to the United States include a bloated bureaucracy, lack of competition in the banking sector, regulations limiting foreign ownership and investment, over-regulation in real estate, and high levels of unionization.
Canada's workforce is more than twice as unionized as that of the United States. In a perfect world, all industries could be unionized and still thrive. However, a key principle of modern economics states that for a union to exist sustainably, the employer must be able to fail if union demands exceed profitability—otherwise, equilibrium cannot exist. The most powerful unions in Canada operate within the public sector, an employer that cannot fail because it is not required to be profitable. This is why the Carney government has required government agencies to reduce their budgets, and we may see further tightening in Tuesday's budget.
Based on 2024 statistics, Canada's GDP per capita was approximately 63.26% of that of the U.S. Compared to individual states, this places Canada between the two poorest states: Mississippi and Arkansas.
U.S. Economic Outlook and Impact on Canada
Job growth in the U.S., despite high GDP, has essentially stalled. The growth of the U.S. economy is now almost completely dependent on investment in large AI companies. The success of these companies is displacing many American workers as their jobs are replaced by AI, revealing the negative effects AI will have on the job market. Should the AI investment bubble burst, it could lead to economic collapse.
A declining U.S. economy would cause treasury yields to fall, which would put downward pressure on Government of Canada bond yields and subsequently cause Canadian fixed interest rates to fall.
Oct. 29, 2025 -- Bank of Canada Lowers Key Rate by 0.25%, Bringing Down Variable Rates.
The Bank of Canada lowered the overnight rate by 0.25% today as expected, which will bring down rates by 0.25% for variable mortgage rates.
The Bank stated that “While the global economy has been resilient to the historic rise in US tariffs, the impact is becoming more evident. Trade relationships are being reconfigured, and ongoing trade tensions are dampening investment in many countries. In the MPR projection, the global economy slows from about 3¼% in 2025 to about 3% in 2026 and 2027”.
The Bank cited other reasons for the cut, including an economic contraction of 1.60% in the second quarter of 2025, uncertainty over trade with the U.S. with a drop in Canadian exports, specifically in autos, steel, aluminum, and lumber (all items which are being heavily tariffed by the U.S.), and that economic growth in Canada is expected to be low in the second quarter.
Other items which negatively affect the Canadian economy include a 7.10% unemployment rate and slow wage growth. The Bank cited that slower population growth means that less jobs are required to keep the employment rate steady, so unemployment should not continue to grow at a fast pace.
Although inflation has been below the 3.00% upper bound of the Bank of Canada’s comfort zone, the Bank does have concerns about rising inflation, which they will monitor closely when assessing their rate policy going forward.
The Bank did note that economic growth in the U.S. has been strong due to the “boom” in AI investment, however, in the U.S., employment growth has slowed and tariffs have pushed up U.S. consumer prices, which points towards a case of the rich getting richer, and the poor getting poorer, which is an ongoing theme in the modern global economy.
Overall, the future of the “Canadian economy”, stated the Bank, “faces a difficult transition. The structural damage caused by the trade conflict reduces the capacity of the economy and adds costs. This limits the role that monetary policy can play to boost demand while maintaining low inflation”.
Government of Canada bond yields (the basis for fixed mortgage rates) actually rose slightly after the announcement, suggesting traders may have anticipated the possibility of a larger reduction than 0.25%, however the slight rise in yields pales in comparison to the large decrease we have seen in the yields since mid-July.