On the Radar: Does the Strong U.S. Jobs Report Mean Higher-for-Longer Canadian Mortgage Rates?

Capital Markets update
Feb 13, 2026

First National Financial LP

Key Takeaways:

The U.S. economy added 130,000 jobs in January, well above the 55,000 consensus estimate, and the unemployment rate fell to 4.3 percent from 4.4 percent in December, reinforcing the view that the U.S. labor market is stabilizing rather than deteriorating.
Market pricing for a Fed rate cut at the March 18 meeting dropped from roughly 20 percent to about 8 percent after the release, and the probability of a June cut fell below 50 percent, pushing the expected timing of the next U.S. rate reduction further into 2026.
A Fed that is in no hurry to cut removes a key source of downward pressure on U.S. Treasury yields, which in turn keeps a floor under Government of Canada 5-year and 10-year yields and limits the scope for meaningful relief in Canadian fixed mortgage rates.

Strong Headline With Important Caveats

The January U.S. employment report beat expectations on almost every front. The economy added 130,000 jobs, more than double the 55,000 that analysts had projected, and well above the revised 48,000 gain in December. The unemployment rate ticked down to 4.3 percent. Average hourly earnings rose 0.4 percent month over month and 3.7 percent year over year, and hours worked also increased, meaning aggregate take-home pay was notably strong.

That is the upside. The caveats are significant. The gains were heavily concentrated in healthcare and social assistance, a sector that tends to grow regardless of the business cycle. Construction added 33,000 jobs, largely tied to data center buildouts rather than broad-based demand. Outside of those two areas, hiring was subdued. Financial activities and information services shed a combined 34,000 jobs, trade, transportation and utilities lost 9,000, and the federal government cut 42,000 positions. Manufacturing added only 5,000 after losing 126,000 since late 2024.

The report also came with large backward-looking revisions. The Bureau of Labor Statistics now estimates the U.S. created only 1.5 million jobs in 2024, down from the previously reported 2 million, and just 181,000 in 2025, down from the earlier estimate of 584,000. In practical terms, the economy accomplished what it accomplished last year with far fewer workers than originally counted, which implies higher productivity but also confirms that the labor market was much softer through 2025 than real-time data suggested.

What It Means For Fed Rate Expectations

The immediate market reaction was straightforward. Treasury yields moved higher and traders repriced the path for the federal funds rate. Before the report, derivative markets had placed the probability of a 25 basis point cut at the March 18 FOMC meeting at roughly 20 percent. After the release, that fell to about 8 percent. The June meeting, previously considered the most likely window for the next reduction, saw its implied cut probability drop below 50 percent.

The Fed had already paused in January after three consecutive cuts in the final months of 2025. Officials described the labor market as stabilizing and inflation as still slightly above target, and the January data reinforce that framing. With the unemployment rate moving in the right direction, wages growing at a pace that is still above what most Fed officials would consider consistent with 2 percent inflation, and the household survey showing improvement in metrics like part-time employment and duration of unemployment, the argument for cutting rates on labor market grounds has weakened materially.

The January CPI report, due February 13, becomes the next key data point. If inflation comes in firm, the case for any near-term cut will weaken further. If it surprises to the downside, markets could partially reverse the repricing. But the employment report has shifted the baseline. The Fed is now more likely to remain on hold through the first half of 2026, and traders are pricing accordingly.

The Bridge To Canadian Rates And Mortgage Pricing

For Canadian mortgage holders, the U.S. jobs report matters because U.S. Treasury yields exert a persistent gravitational pull on Government of Canada bond yields, particularly at the 5-year and 10-year maturities that anchor fixed mortgage pricing. When U.S. yields rise or stay elevated because the Fed is not cutting, it becomes harder for Canadian yields to move meaningfully lower, even if domestic conditions might otherwise warrant it.

The Bank of Canada has already paused its own rate at 2.25 percent and signaled that it is comfortable holding at that level unless the data shift materially. The divergence between the Bank of Canada’s overnight rate and the federal funds rate is already wide by historical standards. If the Fed stays at 3.50 to 3.75 percent through mid-2026 while the Bank of Canada remains at 2.25 percent, the rate gap continues to put downward pressure on the Canadian dollar and limits how far Canadian yields can fall independently of U.S. yields without risking a currency-driven inflation problem.

The practical implication is that a strong U.S. labor market pushes back the timeline for the next Fed cut, which keeps U.S. 5-year and 10-year Treasury yields elevated, which in turn keeps a floor under GoC yields at the same maturities, and that floor is what prevents fixed mortgage rates from declining. Even if the Bank of Canada were to cut its overnight rate further, the effect on fixed mortgage rates would likely be muted as long as GoC 5-year and 10-year yields are being held up by the U.S. rate environment.

What Could Change The Picture

The strength of the January report is real, but it carries enough noise that subsequent data could shift the narrative. The concentration of hiring in healthcare means the breadth of job creation is still narrow. Trade-exposed sectors remain stagnant, and the federal workforce is shrinking. If the next two or three months show payrolls reverting to softer numbers and the revisions continue to paint a weaker backward-looking picture, the Fed could return to a more dovish posture by mid-year.

There is also the tariff dimension. Policy uncertainty has been a drag on business hiring decisions for much of the past year, and any escalation could weigh further on investment and employment in trade-sensitive industries. If that pressure intensifies, it would work against the positive signal from the January headline.

Bottom Line

The January U.S. jobs report was stronger than expected on the surface and confirmed that the labor market is stabilizing rather than deteriorating, even as large revisions revealed that 2025 was much weaker than originally reported. The immediate effect has been to push the expected timing of the next Fed rate cut further out, with the March probability dropping to 8 percent and the June probability falling below 50 percent.

For Canadian mortgage rates, the signal is that the U.S. rate environment is not going to provide relief any time soon. A Fed on hold keeps U.S. Treasury yields elevated, which anchors GoC 5-year and 10-year yields and limits the downside for fixed mortgage rates. The Bank of Canada’s domestic stance matters, but as long as U.S. yields remain firm, there is a floor under Canadian fixed rates that domestic policy alone cannot easily remove.

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