Weaker employment numbers spark expectations of imminent rate cuts in Canada and the US
A sharp drop in North American employment data is fuelling expectations of imminent interest rate cuts on both sides of the border, with markets now betting that central banks will move sooner rather than later.
According to Mortgage News Daily cited by CNBC, the average rate on the 30-year fixed mortgage in the United States plunged 16 basis points to 6.29 percent after a weaker-than-expected August employment report.
This marks the lowest level since early October and the largest single-day drop since August 2024.
Matt Graham, chief operating officer at Mortgage News Daily, described the move as “a pretty straightforward reaction to a hotly anticipated jobs report,” adding that the bond market consistently treats employment data as the most significant driver of rate volatility.
The Canadian labour market also showed signs of strain.
As reported by Statistics Canada, the national unemployment rate jumped to 7.1 percent in August, the highest in over nine years outside of the pandemic.
The economy lost 66,000 jobs, primarily in part-time roles, with professional and technical services leading the declines.
According to Financial Post, Andrew Grantham, senior economist at CIBC, observed that weakness now extends beyond trade-sensitive sectors. He suggests that a rate cut could stimulate broader demand and hiring.
“The weaker than expected employment report saw financial markets pricing in a greater probability of a September interest rate cut, resulting in a decline in bond yields,” Grantham said.
The Bank of Canada’s next rate decision is set for September 17, and the latest jobs data has reinforced expectations for a policy shift.
Douglas Porter, chief economist at Bank of Montreal, observed that the cumulative job losses since the start of the year, coupled with a rising jobless rate, “fully reinforces any bias for the Bank of Canada to ease somewhat further here, but inflation hasn’t quite given them the all-clear.”
Meanwhile, in the US, the drop in mortgage rates is already having ripple effects in the housing market, with homebuilder stocks such as Lennar, DR Horton, and Pulte rising about 3 percent midday, as reported by CNBC.
However, mortgage demand from homebuyers has yet to pick up, with applications for home purchases still lagging despite the lower rates.
David Russell, global head of Market Strategy at TradeStation, summed up the market mood: “Bad news for employment is good news for investors wanting lower rates.” He noted that a September rate cut is almost certain, with October also becoming more likely.
According to Russell, “The punch bowl could be ready to go as job growth grinds to a halt.”
For Canadian households, the pressure extends beyond job losses.
Stacy Yanchuk Oleksy, CEO of Money Mentors, told Wealth Professional that “the pressure Canadians are under today isn’t only about losing work, it’s about what happens next.”
She explained that when incomes shrink and costs continue to rise, people often feel compelled to borrow, sometimes resorting to risky quick fixes that can worsen their financial situation.
