The US president's wave of tariffs has plunged global financial markets into turmoil – and sparked speculation of a long slide for Canadian interest rates
Global financial markets have reeled in the week since US president Donald Trump stepped forward in the Rose Garden to announce a sweeping tariff regime on trading partners, sending stocks tumbling and spiking fears of a sharp worldwide economic downturn.
That meltdown could trigger the global economy’s most severe crisis since the COVID-19 pandemic, with speculation even growing that the Federal Reserve may make an emergency interest rate cut next week as odds of a US recession surge.
But the idea of Canadian interest rates plunging to the levels seen during the pandemic seems a fanciful one, according to CoStar Group chief economist and head of market analytics – Canada, Carl Gomez.
He told Canadian Mortgage Professional that the Bank of Canada appeared to be in no mood to slash rates to rock-bottom lows, as it did at the onset of the pandemic in March 2020.
“The Bank of Canada can influence prime lending rates and therefore variable rates, which have come down – but they haven’t gone back to zero, which was what they were during COVID and other emergencies,” he said. “And I’m highly doubtful the Bank of Canada is going to go to zero again during this emergency because of the added risk of inflation. And they’ve kind of said as much.”
The central bank was badly burned as Canada emerged from the pandemic, when inflation rocketed to a 39-year high of 8.1% in June 2022 and prompted a steep jump in the Bank’s benchmark rate.
Canada's job market took a hit in March with 33,000 jobs lost, raising speculation of an interest rate cut by the Bank of Canada. Doug Porter from BMO Capital Markets and Bradley Saunders from Capital Economics weigh in on the impact.https://t.co/F16x7EqRQ4
— Canadian Mortgage Professional Magazine (@CMPmagazine) April 7, 2025
Fixed rates are falling – but affordability challenges remain steep
Meanwhile, 10-year Government of Canada bond yields – which heavily influence fixed mortgage rates in Canada – nosedived after Trump rolled out his tariffs last weeks, but have trended upwards since the beginning of this week.
“While [yields] are down, and they’re certainly down over the last month with all this volatility, that’s largely because there’s risk-off going on and money is flowing out of the equity markets into the bond market, therefore pushing yields a little bit lower,” Gomez said.
“They still aren’t all that low and are realistically still higher than they were through COVID, higher than most of the last decade, and that’s not translating to low enough mortgage rates to stimulate animal spirits in the housing market.”
Fears of deep Canada recession likely to weigh against housing market
While Trump has raged against the US’s trade deficit with Canada in recent months, and frequently suggested in incendiary remarks that Canada and the US should form a single country, both Canada and Mexico were curiously spared the worst of the president’s wave of so-called “Liberation Day” tariffs last week.
That might give Canada a slight competitive advantage over other countries who fared worse last week – but Trump’s tariff war is still expected to hit the Canadian economy hard, particularly with heavy levies against steel, aluminum, and Canadian automakers.
The stage has already been set for a bruising trade war between Canada and the US, with Prime Minister Mark Carney blasting Trump’s automotive tariffs as “unjustified” and vowing to slap 25% counter-tariffs on American car imports to Canada.
But Carney was also frank about the likelihood of sharp pain for Canada’s economy as a result of Trump’s tariff agenda.
In fact, Canada may already be in a recession, according to CoStar, a decline that could last for the better part of a year – and customers, unsurprisingly, already appear to be pulling back from big spending if a Bank of Canada report released this week is anything to go by.
Wavering consumer confidence in the economy and fears of a big economic contraction will probably seep into the housing market outlook, Gomez said.
“We’re expecting 180,000 job losses across the country over the last year. We started to see a little bit of that in the past month and with the employment survey, if you put that all together, big purchases are probably not something businesses and consumers are likely to entertain. To some extent, that probably includes housing, going forward.”
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