BoC Cuts, but the Party's Over (for now)

The Bank of Canada trimmed its overnight rate by another 25 bps to 2.25%, but the celebration was short-lived.

Markets quickly priced this as the final cut of the cycle, with only a 10% chance of another move at the December 10 meeting and just 35% odds of any cut in 2026.

The 5-year Government of Canada bond yield jumped roughly 10 bps to about 2.71%, a clear sign that fixed mortgage rate relief has run its course — for now.

Governor Tiff Macklem’s message was direct:

“If the economy evolves roughly in line with the outlook, the governing council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.”

Translation: no more cuts unless something breaks.

This is also a pretty sure sign there won’t be a cut in December.

This stance assumes CUSMA stays intact. But as the Bank quietly admitted, “Businesses and consumers will be cautious as they wait for more clarity about the future of CUSMA.”

That’s putting it mildly — Canada’s trade outlook is dangling by a diplomatic thread, and the scissors, for the most part, are in Trump’s hands.

If CUSMA collapses, exports and business investment could plunge, job losses could spike, and mortgage arrears could soar.

Such a shock could force 100 bps+ of emergency cuts — possibly even zero-rate policy — but for now, markets aren’t buying that story.

Beyond the rate chatter, Macklem issued his bleakest warning yet. Canada’s economy, he said, faces a ‘period of structural adjustment’ — where jobs and investment are permanently leaving the country.

Canadians should expect a lower standard of living overall as the economy adjusts, he noted. Getting back to higher living standards will require the right government policies to bring investment and jobs back — but that’s beyond the Central Bank’s control.

In other words: monetary policy can dull the pain, not cure it.

The upcoming Federal Budget (Tuesday) will show whether Ottawa intends to offset that damage with tactical spending policies that support new growth and reduce structural decline.

Markets barely flinched at Trump’s latest 10% tariff volley against Canada.

Maybe that’s because the damage is already priced in — or because prediction markets only give Trump a 40% chance of winning his Supreme Court case defending the tariffs this week (Nov 5).

If those tariffs are ruled illegal, it could take some inflation heat off both sides of the border — but expect plenty of political fireworks before then.

Meanwhile, the U.S. 10-year Treasury yield is hovering around 4%, holding steady after a volatile week. That stability helped prevent Canadian yields from sliding further.

With the BoC on pause, fiscal policy will carry the torch.

Tuesday’s budget will outline just how generous Ottawa plans to get — and markets will be watching how much “stimulus” turns into inflationary smoke.

As the COVID era taught us, aggressive spending has a habit of keeping mortgage rates higher than they’d otherwise be.

The budget plans to focus on positive things, like diversifying trade/ exports and retraining workers affected by the recent tariffs. However, if the Provincial and Municipal governments are not in line policy-wise, if red tape and taxes remain counterproductive, planning and funding at the federal level may not be effective.

For now, mortgage shoppers shouldn’t count on more relief. 

Even if one additional cut were to occur, the variable is unlikely to yield much, if any, value over fixed rates. Fixed rates still carry insurance value against the risk that yields climb back 25–30 bps if sentiment turns.

“There’s already a lot of economic/growth easing priced into the market for the next 14 months, and even a small shift in tone could lift yields,” notes AllianceBernstein’s Scott DiMaggio.

Despite the BoC’s latest cut, housing demand remains sluggish.

The recent 0.25% BoC cut may perk some ears; however, cautious sentiment and trade uncertainty are keeping many would-be purchasers on the sidelines.

A strong jobs number could push yields higher; a weak one could reignite cut chatter. Either way, it’s shaping up to be a volatile week for bond desks and mortgage watchers alike.

The BoC’s latest move might mark the end of the line for this easing cycle.
The focus now shifts to trade headlines and fiscal policy — not monetary rescue.

Mortgage rates may have bottomed for the year, unless the economy takes another hard knock.

Stay Tuned.