On the Radar: U.S. rates are rising. Will Canadian mortgage rates follow?

Economic insights
Sep 17, 2026

First National Financial LP

Quick takes:

U.S. policymakers raised rates by a quarter point on Wednesday afternoon, setting a target range of 3.75% to 4.00% as inflation persisted and the economy proved more resilient than expected.
This article looks back at U.S. rate increases from 1994 to 2023 and what happened to Canadian bond yields and mortgage rates, including periods when Canadian rates fell while U.S. rates rose.
Canada can set its own policy rate, but U.S. bond markets can still influence Canadian mortgage rates.

U.S. policymakers raised rates by a quarter point on Wednesday afternoon, setting a target range of 3.75 percent to 4.00 percent. The first increase since July 2023 began reversing last year’s cuts because the economy had proved more resilient than feared, while inflation had failed to retreat as expected.

Last year, three cuts were intended to protect against a weakening labour market. Since then, an investment surge tied to artificial intelligence has supported activity, while the Iran war has pushed energy costs higher and complicated the return to stable prices.

Those forces create a harder problem than an isolated jump in oil. Higher rates cannot produce more fuel, but resilient demand can make it easier for rising costs to spread through the economy, leaving policymakers less comfortable waiting for the energy shock to pass.

Federal Reserve Chair Kevin Warsh had warned that inflation was not improving enough, and the increase on Wednesday afternoon followed through on that warning. Despite President Donald Trump’s calls for lower rates, every voting member supported the increase, showing agreement within the committee that inflation required a firmer response.

The projections also pointed to further tightening, with 16 of the 18 officials submitting forecasts anticipating at least one more increase this year. Those forecasts are not commitments, but they suggest policymakers expect more than a single increase before rates can fall again.

For Canadian borrowers, the question is whether that change in the U.S. outlook will lift financing costs here even if the Bank of Canada stays on hold. The history offers several different answers, beginning with the most recent tightening cycle, when Canadian funding yields sometimes fell while U.S. policy rates were still rising.

2023 brought lower funding yields and uneven mortgage pricing

In the first quarter of 2023, the U.S. delivered two further quarter-point increases as its tightening cycle continued. Meanwhile, the five-year Canada Mortgage Bond yield fell 41 basis points to 3.30 percent.

However, the lower yield at quarter-end did not tell the whole story. A late-March proposal to change the Canada Mortgage Bond program disrupted trading, briefly drove insured mortgage rates higher and complicated hedging and rate locks.

Funding yields had fallen, but disruption in the mortgage bond market still affected the rates lenders could offer and lock. Neither central bank’s announcement captured that change in borrowing conditions.

Canadian rates rose first in 2022

A year earlier, both countries faced an inflation problem that required much higher rates, but Canada actually moved first. Its initial increase came two weeks before the U.S. decision in March 2022, and the Canadian overnight target rose from 0.25 percent before tightening to 4.50 percent by the following March.

Between February 2022 and March 2023, Canada’s five-year government bond yield increased from 1.79 percent to 3.05 percent. The average rate on new uninsured residential mortgage advances with fixed terms of at least five years rose from 2.81 percent to 5.11 percent, but those increases do not establish that U.S. policy caused Canadian rates to rise.

Canada held rates after the U.S. increase in 2015

The cycle that began in December 2015 produced a different sequence after the first U.S. increase. Canada had cut twice that year as lower oil prices damaged its economy, and its overnight target stayed at 0.50 percent until July 2017, roughly 19 months after the first U.S. increase.

During that wait, Canada’s five-year bond yield first fell and then rose. It declined from 0.74 percent in December 2015 to 0.62 percent the following June, before reaching 1.16 percent in December 2016, while the Canadian policy rate remained unchanged.

Mortgage rates did not simply follow the U.S. increases either. The posted five-year residential rate was 4.64 percent in both December 2015 and December 2016, while the average rate on new uninsured residential mortgage advances with fixed terms of at least five years declined from 2.82 percent to 2.63 percent.

Canadian bond yields had therefore begun rising months before the Bank of Canada raised its rate. Waiting for a Canadian policy increase would have missed that turn in the market.

U.S. rates rose while Canadian fixed rates fell in 2004

Going back to June 2004, the U.S. began that cycle with a quarter-point increase from 1.00 percent to 1.25 percent, then kept going. By the end of June 2005, its policy rate had reached 3.25 percent, while Canada’s overnight target had risen much less, from 2.00 percent to 2.50 percent.

Meanwhile, Canadian bond yields and fixed mortgage rates fell. Between June 2004 and June 2005, the five-year government bond yield declined from 4.07 percent to 3.20 percent, and the posted five-year mortgage rate fell from 6.70 percent to 5.70 percent.

Those mortgage figures are posted residential rates, so they should not be mistaken for negotiated commercial financing. However, Canadian policy rates and prime rose while the fixed mortgage rate fell during a sustained series of U.S. increases.

The first U.S. increase did not predict where Canadian fixed rates would be a year later. Although both central banks raised policy rates, Canadian fixed mortgage rates finished the period lower.

Canadian rates climbed sharply in 1994

Going back to 1994 brings a much less reassuring precedent. U.S. rate increases began that February, and over the following year Canada’s five-year bond yield rose from 6.12 percent to 8.46 percent, while the posted five-year mortgage rate climbed from 7.25 percent to 10.38 percent.

However, Canada brought its own vulnerabilities to that episode. Fiscal concerns and currency pressure increased the premium investors demanded for Canadian debt, making it misleading to attribute the entire rise in Canadian borrowing costs to U.S. policy.

What the history says about this increase

Canadian bond markets nevertheless have a substantial connection to U.S. markets. A historical assessment presented in 2016 found that, over the preceding 30 years, roughly three-quarters of increases in U.S. five-year yields were reflected in Canadian five-year yields, although that relationship concerned bond yields rather than policy-rate increases.

That distinction matters this week. A quarter-point U.S. policy increase does not dictate the size of any change in Canadian mortgage rates, but a sustained rise in U.S. bond yields can raise Canadian funding costs even if the Bank of Canada holds.

For now, Canadian conditions give the Bank of Canada reason to keep its policy rate at 2.25 percent, with the latest CPI-trim and CPI-median inflation readings at 1.9 percent and 2.0 percent. Those readings support a different policy path from the U.S., but they do not guarantee stable Canadian bond yields.

Canadian fixed mortgage rates can fall while U.S. policy rates rise, as 2004 demonstrated. But as 2015 and 2023 show, Canadian bond yields and mortgage funding conditions can change well before the next Bank of Canada decision.