Residential Market Commentary - Interest Rate Holding Pattern

Casual observers of the Canadian economy – which would be the vast majority of us – can be forgiven for walking away from the latest business reports with blank, confused looks on our faces. Any effort to forecast interest rate moves will likely induce a headache. 

The Gross Domestic Product reading for the first quarter of 2026 saw the country sag into a technical recession; two consecutive quarters of economic contraction. In fact, Canada’s economy has contracted in three of the last four quarters.  But the policymakers and economic pundits say it is too soon to be uttering the “R” word. They say the underlying fundamentals are still sound, and early forecasts point to a big rebound in April’s GDP reading. 

The Consumer Price Index (headline inflation) is up, hitting 2.8% in April. But the experts tell us, “That’s not so bad”. Most of the increase is fuelled by surging oil prices and those costs have not seeped into the broader economy… yet. Core inflation, which is what the Bank of Canada watches, is actually down. 

Last, but not least, the Canadian economy added nearly 88,000 jobs in May, roaring past expectations for a 10,000 increase. Almost all of the new jobs are full time, most are in the private sector and the unemployment rate dropped to 6.6%, from 6.9% in April. It was very surprising good news, but the number of jobs is still about 24,000 fewer than a year earlier. 

What does it all mean for interest rates? Probably a lot more “wait-and-see”. The Bank of Canada is expected to wait for more clarity and stability. Bond traders are still calling for a rate increase, but now just one and late in the year. Other market watchers have put off any notion of a rate change – either up or down – until next year.