How the US Federal Reserve Affects Canadian Mortgage Rates

The US Federal Reserve doesn’t set any Canadian rate. The Bank of Canada sets the policy rate that variable mortgages follow, and fixed rates follow Government of Canada bond yields. But Fed decisions reach both: through bond markets, through the Canadian dollar, and through the US economy. This page, part of the guide to mortgage rates in Canada, shows the two central banks’ rates side by side and how each route works.

The two policy rates today

The Fed’s policy rate is the federal funds rate, which the Federal Reserve describes as the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight, the same role the overnight rate plays in Canada. The Fed sets a target range for it rather than a single rate.

Sources: Federal Reserve, open market operations table and the FOMC statement of September 16, 2026, which raised the range by 25 basis points; Bank of Canada series V39079.

The bottom of the Fed’s range is 1.50 percentage points above the Bank of Canada’s rate. Both central banks aim for 2% inflation, but each sets its rate for its own economy, so the gap moves:

Bank of Canada: series V39079. Federal Reserve: the level in effect at year end, from its open market operations table.

The gap opened when the two banks’ cycles split. The Fed held its range at 5.25-5.50% from July 27, 2023 until a 50 basis point cut on September 19, 2024. The Bank of Canada made its first cut earlier, on June 5, 2024, and its rate was down to 2.25% by October 29, 2025, while the Fed’s range stayed higher.

Route 1: bond yields and fixed rates

Canadian fixed mortgage rates are benchmarked to the 5-year Government of Canada bond yield, while “the US benchmark is the 10-year Treasury,” as a Bank of Canada speech on the mortgage market put it. Investors can hold either country’s bonds, so a move in US yields tends to pull Canadian yields the same way, and fixed rates with them. The bond yield page shows how far Canadian fixed rates have sat above the 5-year yield.

The pull isn’t one for one. In its July 2026 Monetary Policy Report, the Bank of Canada noted that in the United States, “sovereign bond yields and market pricing for the policy rate have increased,” while “in Canada, yields are little changed on net.” By its September 2, 2026 announcement, it reported that long-term bond yields had moved up globally, including in Canada.

Route 2: the Canadian dollar

When US yields rise relative to Canadian ones, holding US dollars pays more, which tends to weaken the Canadian dollar. The Bank of Canada saw this in mid-2026: the Canadian dollar “has depreciated to around 71 cents US,” it wrote in the July report, which “partly reflects a widening spread between US and Canadian government bond yields.”

A weaker dollar matters to mortgage holders because of inflation. In the Bank’s outlook, “the depreciation of the Canadian dollar raises import prices,” even as it makes Canadian exports more competitive. Inflation is what the Bank of Canada targets, so a weaker dollar that pushes prices up weighs on its rate decisions, and those reach variable rates through prime. At the Bank of Canada’s daily rate for 2026-09-23, one US dollar cost C$1.4096, so one Canadian dollar bought 70.9 US cents.

Route 3: the US economy and trade

US demand for Canadian exports means US growth, recession or trade policy changes the economy the Bank of Canada is setting rates for. At its September 2, 2026 announcement, the Bank wrote that new US tariffs and Canadian counter-tariffs “will also raise costs for some businesses and could feed into consumer prices over time,” and that “new US tariffs and threats of further action pose risks to the sustainability of the recovery.” The two effects pull in opposite directions; in the same statement the Bank said that “the upside risks to inflation have increased, while new tariffs make growth prospects more uncertain.” How tariffs fit among the other forces on mortgage rates is covered in the guide to how mortgage rates are determined.

Neutral rates in both countries

The Bank of Canada estimates a neutral rate for Canada, the level its policy rate would settle at in the long run, and uses the US neutral rate as a proxy for the global one. In its April 2026 Monetary Policy Report:

The Bank counts spillovers from a higher US neutral rate among the upward pressures on Canada’s. What the neutral rate means for a borrower is on the policy rate page.

The two calendars this year

The Federal Open Market Committee (FOMC), which sets the Fed’s rate, holds eight regularly scheduled meetings a year. The Bank of Canada announces its policy rate decisions on eight fixed dates a year. Each FOMC meeting date is tentative until confirmed at the meeting before it.

Sources: Bank of Canada schedule; Federal Reserve FOMC calendar.

Fed statements are published on federalreserve.gov and the Bank of Canada’s on bankofcanada.ca. Where forecasters expect both banks to go is on the interest rate forecast page.

Related pages

• Bank of Canada policy rate explained
• How bond yields affect mortgage rates
• Recessions, stagflation and your mortgage
• Fixed vs variable mortgages