US Tariffs’ Affect on Canadian Mortgage Rates
The short explanation is that it’s too early to tell. But it’s not too early to start looking at economic data that offers clues as to what might happen soon. The effect of tariffs on mortgage rates largely depends on the economic impact on inflation and the Canadian economy.
Inflation and the Economy
If tariffs push inflation higher, they could put upward pressure on mortgage rates. But if tariffs weaken the Canadian economy, that could motivate the Bank of Canada to lower rates in order to stimulate economic growth.
When prices are rising too quickly, the Bank of Canada may keep interest rates higher to help slow inflation. Higher interest rates lead to higher borrowing costs for banks. These incremental costs are passed on to consumers through increased mortgage rates.
On the other hand, if tariffs weaken the Canadian economy, the Bank of Canada may lower interest rates to help stimulate economic activity. This move could lower mortgage rates.
Predicting the Path of Rates
We can look at a combination of economic data. Inflation reports tell us whether tariffs are putting pressure on prices. Unemployment data, GDP and consumer spending reports give us insight into the health of the Canadian economy.
Taken together, these numbers can give us a better idea of whether mortgage rates are more likely to rise or fall, and how likely either outcome may be.
What the Data Says
As of the date I write this article, I would characterize the evidence as mixed, but leaning toward keeping rates unchanged versus cutting them. This notion is also broadly consistent with the Bank of Canada’s decision in July to hold its policy rate at 2.25%.
The latest economic data gives us a mixed picture:
- Inflation: 2.8% in June is still above the Bank of Canada’s 2% target. This indicator would give the Bank of Canada more reason to keep interest rates unchanged.
- Employment: Canada added 75,000 jobs in July, while unemployment fell to 6.4%. These readings suggest the economy is strong, reducing the need for a rate cut.
- GDP: The economy grew 0.3% in May. The data reveals an economy that is not weakening – creating potential increased inflation.
- Consumer spending: Retail sales increased 1.0% in May. Consumers are still spending, which again gives the Bank less reason to lower rates.
The Waiting Game
It may take several months before the data gives us a clear answer. Tariffs take time to work their way through the economy. The data itself is often released weeks or months after the economic activity actually occurred. History suggests it can take a year or longer before we see the full effects of tariffs.
In June 2025, the Bank of Canada published a research paper titled Assessing Tariff Pass-Through to Consumer Prices in Canada: Lessons from 2018. It examined the effect of tariffs on Canada during the 2018–2019 U.S.–Canada trade dispute.
The research suggests that tariffs’ influence on inflation can develop for roughly 18 months. The effects on employment, business investment and economic growth can also take time to develop.
* Bank of Canada: Assessing Tariff Pass-Through to Consumer Prices in Canada — Lessons from 2018
* Bank of Canada: The Impact of U.S. Trade Policy on Jobs and Inflation in Canada
Next steps…
If your mortgage is up for renewal in the next six months, you’re going to want to pay close attention to the economic data in order to make predictions on mortgage rates. If your renewal is not up until next year, you’ve got time for the economic effects to play out. We would always recommend that you speak with a licensed mortgage agent to help you make the decision that’s best for you.
But now you know which economic data to keep an eye on. You can use this information to identify potential impacts tariffs may have on the economy and, ultimately the path of mortgage rates.
Resources
Here are some sources of data discussed in this article which you can explore:
- Inflation / Consumer Price Index (CPI)
https://www.statcan.gc.ca/en/subjects-start/prices_and_price_indexes/consumer_price_indexes - Employment / Unemployment Rate
https://www.statcan.gc.ca/en/survey/household/3701 - Gross Domestic Product (GDP)
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610043401 - Consumer Spending / Retail Sales
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=2010005602
