As the year comes to an end, we await one last series of updates from those at the helm of North America's biggest economies. First up comes dualling interest rate announcements by the Bank of Canada (BOC) and United States Federal Reserve (Fed) on December 10th. Both of those will be informed by respective data and reports from the past few months. The decision to move interest rates or leave them be has also historically been subject to influence; broader expectations may sway which way we go. Here's a background and current-day analysis of 2025 interest rate standings for the end of 2025:
Why Interest Rates Matter
Let's start off with a bit of context. Why should you care about the BOC or Fed's announcements? The answer is simple: because rates rule everything. They're particularly relevant to those in real estate. Benchmark interest rates directly impact the entire lending ecosystem, determining how much consumers and businesses pay to borrow money. Higher rates mean higher borrowing costs, while lower rates can make home ownership more accessible.
But the implications extend far beyond individual borrowing. Central bank interest rate decisions are powerful economic levers that influence consumer spending, inflation, and overall economic growth. Even small rate changes can significantly impact housing affordability. As an investor, it can mean the difference between qualifying for the purchase of a new property and having to wait or redraw financial plans.
Not buying or renewing any time soon? You should still care. Rate movements provide crucial insights into broader economic trends and potential future financial landscapes. The more you're in tune with what's changing and why, the better you'll be able to make strong long-term plans for your long-term rental.
The Fed's Last Move
In essence, the Fed’s last move was one of patience rather than progression.
Rates held steady at its last meeting in early November 2025, keeping the federal funds rate between 3.75% and 4%. This marked the fifth consecutive meeting without a change, confirming the Fed’s gradual shift from an aggressive tightening cycle to a prolonged holding pattern. The decision followed months of cooling inflation and moderate growth in consumer spending - signs that the central bank’s monetary policy was successfully dampening demand without triggering a recession.
However, the “higher for longer” stance wasn’t without consequences. Borrowing costs for mortgages, auto loans, and business credit remained elevated throughout 2025, slowing down housing market activity and new construction. Job numbers still stayed resilient, suggesting a soft landing remained achievable.
The Fed's Next Move
Heading into the December 10th announcement, analysts are split. Inflation remains just above the Fed’s 2% target, but growth indicators are softening, and unemployment has edged slightly higher. This mix of cooling data gives the Fed room to start signaling rate cuts in early 2026 - though few expect an immediate move this month.
Market consensus leans toward “no change,” but forward guidance will likely be the focus. If Chair Jerome Powell hints at easing policy in Q1, markets could react positively, especially in rate-sensitive sectors like housing and tech. For real estate investors, a pivot from “restrictive” to “neutral” policy could mean fresh opportunities in spring 2026 as mortgage rates trend downward.
The BOC's Last Move
The Bank of Canada last adjusted its key overnight rate in September 2025, cutting it by 25 basis points to 2.25%. The move reflected growing evidence that inflation had cooled faster than expected, with core CPI back under 3%. Canadian households - already heavily leveraged compared to their U.S. counterparts - had been struggling under higher mortgage renewal costs and slower wage growth.
Governor Tiff Macklem framed the September cut as a “measured step” toward normalization rather than a full pivot. The bank’s tone remained cautious, emphasizing that monetary easing would only continue if inflation progress proved durable. Still, it was a clear signal that the tightening cycle which began in 2022 had, at last, reached an endpoint.
The BOC's Next Move
This next move could be pivotal for Canadian homeowners and investors. Renewals coming due in early 2026 may finally see some rate relief, shifting sentiment in key real estate markets like Toronto and Vancouver back toward cautious optimism.
Expectations in December point toward another quarter-point cut or at least reinforced dovish guidance. Canada’s GDP grew slightly in Q3, but the economy has stalled in some respects, and housing affordability pressures remain intense. A further reduction could help restore consumer confidence and support sectors tied to credit growth, including housing and retail.
The BOC faces a balancing act. Easing too quickly could reverse gains in price stability, while holding too long risks prolonging a slowdown. Most economists anticipate that Macklem will keep the door open to additional cuts in early 2026 while reaffirming the bank’s long-term inflation goal of 2%.
The 2025 interest rate roller coaster was an unpredictable one. Few analysts can say their bracket of predictions from the beginning of the year came to fruition. Therein lies the takeaway for 2026 - there's no certain way of knowing what will happen. The best anyone can do is stay abreast of upcoming announcements, and just as importantly, take them in with appropriate context. We'll be here to provide it on an ongoing basis.
