Interest Rate Update: No Rate Cuts Yet, But the Markets Are Moving
6th August , 2025
Category: Mortgage Rate Updates
Highlights from Last Week
The Bank of Canada (BoC) held its policy rate unchanged last week, as expected. However, it took a slightly different approach by not providing its usual economic forecast, citing the unpredictability of U.S. trade actions. Instead, it outlined several possible tariff scenarios.
The key message? The BoC appears open to more rate cuts if conditions warrant it—especially if inflation remains manageable. This was seen as a dovish hold.
Meanwhile, the U.S. Federal Reserve also kept its policy rate steady. But in contrast to the BoC, the Fed’s comments were more hawkish than markets anticipated.
Fed Chair Jerome Powell emphasized:
A “solid” U.S. labour market
Persistent inflation above target
And uncertainty around the full effects of trade tariffs
Despite Powell’s tone, markets think otherwise:
Investors now put a 95% chance on a Fed rate cut at the next meeting on September 17, especially after Friday’s weak U.S. employment data.
U.S. Jobs Data: A Closer Look
July’s job growth came in below expectations, with only 77,000 new jobs added. More significantly, job numbers for May and June were revised downward by a combined 258,000 jobs—the biggest non-COVID-related revision since 1979.
While payroll revisions are common due to estimation methods, they tend to dampen economic signals during turning points in the cycle. Once revised, the data now suggest the U.S. economy may be losing momentum faster than previously believed.
Mortgage Rate Update: What This Means for You
U.S. bond yields dropped sharply on Friday, and Canadian Government of Canada (GoC) bond yields followed suit. If yields remain at these lower levels, it could reverse the recent upward trend in fixed mortgage rates.
We’ll have a clearer picture by the end of this week once the bond market finishes digesting the latest data.
On the variable-rate side, the BoC’s dovish stance should give borrowers some optimism. However, the market is still only pricing in a 15% chance of a cut at the Bank’s next meeting on September 17.
That said, variable-rate discounts for uninsured borrowers have recently narrowed, making these rates slightly more expensive than before.
Borrower Tip of the Week
Don’t overlook your closing costs.
Many first-time buyers are caught off guard by these expenses. Use a Mortgage Calculator to estimate them.
Mortgage Strategy Insight
Right now, 3-year and 5-year fixed rates are about the same. In this scenario, the 5-year term typically offers better value, especially as the term premium (the cost of locking in for longer) gradually returns with a normalizing yield curve.
Although rate cuts are coming slower than expected, I still believe variable rates may yield the lowest overall borrowing cost over the term of your mortgage—but only if you can stomach the volatility and have room in your budget to absorb higher payments if needed.