Will December’s Strong Job Growth Stall the Bank of Canada’s Rate Cut Plans? ????
In December, Canada’s job market surged with 91,000 new jobs, surpassing expectations. Most gains were in full-time positions, particularly in cyclical industries, specifically education, transportation, healthcare, and finance. The employment rate increased by 0.2%, marking its first rise since early 2023, while unemployment dropped to 6.7%. ??
But the story doesn’t stop there. US employment growth blew past forecasts south of the border, with 256,000 new jobs in December. Their unemployment rate was historically low at 4.1%, and wage growth remained steady at 0.3% m/m. Economists note that the strength of the US labour market has reduced the chances of additional Fed rate cuts anytime soon. ???
The latest data reveal that bond-market investors responded more strongly to US economic results ?? than to Canadian figures ??, and rightly so. In the US, accelerating inflation ??, a tight labour market ??♂?, and rising consumer purchasing power ??? (which drives about 70% of GDP) have led investors to adjust their expectations for the Fed’s policy in 2025. With inflation rising for three consecutive months and likely higher again in December, rate cuts now seem less likely. As a result, markets are pricing in only a single 0.25% cut this year. Following the latest employment report, which exceeded expectations ??, the 10-year US Treasury yield spiked by another 0.10% ??.
In contrast, Canada’s recent job growth—91,000 new jobs added in December, well above the 25,000 forecast—brought more relief than concern ??. Although the unemployment rate declined slightly ?? and wage growth outpaced inflation, Canada’s broader labour market tells a different story. Employment gains in 2024 were modest, and a rapidly growing labour force driven by immigration ?? created a surplus of workers, preventing significant wage-driven inflation. This surplus allows room for non-inflationary growth, meaning the Bank of Canada’s rate-cut plans are unlikely to change significantly based on the latest data, unlike in the US ??.
With bond yields climbing in Canada and the US—and Canadian future bond markets pricing in only a 61% chance of a January rate cut at the end of today—homebuyers should brace for potential delays in rate reductions. Fixed mortgage rates could see upward pressure as a result. ??
?? Whether you’re considering locking in a fixed rate or exploring the flexibility of a variable rate mortgage, expert guidance can help you navigate these uncertain times. Reach out to our mortgage professionals today! ????
?? What does this mean for you? Potential rate cuts could lower borrowing costs, offering relief for homeowners, buyers, and those refinancing. If you’re considering locking in a rate, now is the time to act. Whether you’re renewing, refinancing, or buying for the first time, nesto mortgage experts can guide you through the shifting economic landscape, helping you make informed choices to secure the best terms for your needs.
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?? Contact nesto mortgage experts today for tailored advice on navigating these shifting economic conditions.
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