Monday Morning Update
October 14, 2025
Last week was light on the data front, in part because the US Federal Government shutdown continued for its third consecutive week.
The lack of new economic data helped amplify the bond market’s reaction to a speech made by US Federal Reserve Chairman Powell on Tuesday.
He had previously emphasized the conflicting challenges of weak US employment and above-target US inflation. Those comments cast doubt on the timing and magnitude of additional Fed rate cuts.
But last week, Fed Chair Powell sounded a decidedly more dovish tone.
He observed that the US labour market is now weakening faster than previously believed and that “in this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen”.
He then assessed that the Fed may need to “take another step toward a more neutral [policy rate] stance”. In banker-speak, that means that the Fed now thinks it may be time for another rate cut.
Bond-market investors responded by increasing the odds of a 0.25% cut by the Fed at its next meeting on October 29 to 97% and by boosting the odds of an additional Fed cut at its subsequent meeting on December 10 to 90%.
Powell tried to reassure bond-market investors that there was room to continue cutting when he assessed that the recent uptick in US inflation was tied to tariffs and not a portent of broadening general inflation pressure.
His soothing words had their desired effect. For now.
(Powell’s similar assurances that COVID-related inflation would prove transitory didn’t age well. Bond-market investors are hoping that this time will be different.)
The Latest on Mortgage Rates
US Treasury yields fell last Tuesday in response to Powell’s speech signaling the Fed’s dovish shift.
The Government of Canada bond yields, which our fixed mortgage rates are priced on, were pulled lower in sympathy. Lenders have begun to reduce their fixed rates a little in response.
Variable-rate discounts were unchanged last week.
Bank of Canada (BoC) Governor Macklem expressed similar concerns about the Canadian labour market last week, and bond-market investors increased the odds of a BoC rate cut at its next meeting on October 29 to approximately 65%.
The Bank’s policy rate currently stands at 2.5%. It has reduced it to 2% or less during all five of its most recent rate-cut cycles. I continue to expect that it will do the same this time before all is said and done.
Insider’s Tip for Borrowers
Your income is probably the single most important factor on your mortgage application because it confirms your capacity to pay, which is the most reliable indicator of a loan’s overall risk.
This post details the two key income tests that are used by lenders, outlines the basic income documentation that will typically be required, and offers advice on how to put your best foot forward.
My Take on Today’s Most Popular Mortgage Options
My assessment of today’s mortgage options remains the same.
Fixed rates are offered at about their long-term average levels.
Right now, the best available three- and five-year fixed rates are both good options. If these rates remain roughly equal, I think five-year fixed-rate terms offer slightly better value.
I continue to believe that today’s variable mortgage rates will likely produce the lowest borrowing cost over their full term. I expect the BoC to enact more rate cuts over the relatively near term.
Anyone choosing a variable rate should do so only if they can live with its inherent potential for volatility. Borrowers must also have the financial capacity to withstand higher costs (and in some cases, higher payments) should my forecast prove incorrect.
Three Posts Every New Visitor to My Blog Should Read
This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages.
This post provides a detailed breakdown of the very different ways that lenders calculate their fixed-rate mortgage penalties. The amounts charged can vary significantly from lender to lender. A lower penalty can save borrowers thousands of dollars if rates drop.
This post provides a detailed summary of the key terms and conditions to pay attention to in your mortgage contract.
