Canadian Mortgage rates affected by the strength of the US Economy

  1. Influence of US Federal Reserve Policy: The US Federal Reserve’s policies, including changes to the Fed funds rate, have a significant impact on global borrowing costs, including those in Canada.
  2. Fear of Inflation: With real-time estimates of US GDP showing strong growth (well over three percent), there’s concern among investors that this economic strength could lead to inflationary pressures. This fear is causing Canadian bond yields to rise.
  3. Impact on Mortgage Rates: Higher bond yields typically result in higher fixed mortgage rates. Mortgage watchers are monitoring borrowing costs closely for any potential increases. However, lenders may not immediately raise rates in response to higher bond yields due to competition in the market.
  4. Expectations for Bank of Canada Actions: Forward rates in the bond market imply expectations for future Bank of Canada rate cuts. As of the information provided, there are projections for three rate cuts in the year, with the first one expected in July. This expectation has decreased slightly from previous estimates.
  5. Uncertainty Surrounding Rate Projections: The passage emphasizes that projections for rate cuts are subject to change and may be influenced by factors such as core inflation. Despite the possibility of another rate hike, the overall trend suggests potential rate relief later in the year.

Overall, the passage highlights the interconnectedness of global economies and how developments in the US economy can impact financial conditions and policy expectations in Canada. It might be too early to rely on rates to go down in the near future, as central bankers keep saying that rates will be staying high for longer.

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