Strong Job Growth Clouds Bank of Canada Rate Cut Hopes

Toronto | Oct 11, 2025, 09:00 EST — Filed via Reuters

Canada’s labour market delivered a strong surprise in September, with the addition of 60,400 jobs, far exceeding economist expectations and marking one of the largest monthly gains this year. The robust showing complicates the outlook for monetary policy, as the Bank of Canada (BoC) had been widely expected to begin trimming its key policy rate as early as October.

Labour Market Surprises Analysts

Economists had forecast a modest increase of around 25,000 jobs. Instead, the actual number was more than double, pushing the national unemployment rate lower and underscoring the continued resilience of Canada’s economy.

The job gains were broad-based, spanning full-time and part-time positions, with notable strength in the construction and services sectors. Analysts note that wage growth also ticked higher, suggesting that household incomes are holding up even as borrowing costs remain elevated.

“September’s report confirms that the labour market is not cooling as quickly as the Bank of Canada had hoped,” said one senior economist at a major bank. “This makes it harder to justify immediate rate relief.”

Rate Cut Hopes Fading

Prior to the jobs release, futures markets had priced in better-than-even odds of a rate cut at the BoC’s October meeting. Those bets quickly receded following the employment data.

The Canadian dollar rebounded to a six-month high against the U.S. dollar on Friday as traders rebalanced their expectations. Government bond yields also rose, reflecting diminished hopes of a near-term pivot to easier monetary policy.

“This labour strength puts the BoC in a tricky position,” noted a Bay Street strategist. “Inflation is moderating, but the jobs market is sending the opposite signal.”

What It Means for Mortgage Holders

For homeowners, the stronger labour market may translate into higher-for-longer interest rates.

• Variable-rate mortgage holders, who had been looking forward to relief, could be stuck with elevated monthly payments into late 2025.
• Fixed-rate borrowers may also face higher renewal rates than expected, as bond yields — which influence fixed-rate pricing — remain sticky.
• First-time buyers hoping for lower entry costs may find affordability pressures persisting longer than anticipated.

The risk is especially acute for households facing renewals over the next 12 months. BoC research indicates that more than half of renewing mortgages will see higher payments compared to December 2024, in some cases by 15–20%.

Broader Economic Context

The strong jobs data adds to a mixed economic picture. While inflation has cooled from its 2022–23 peaks, it remains slightly above the BoC’s 2% target. Consumer spending has slowed, but not to the degree that policymakers anticipated.

At the same time, housing markets in cities like Toronto and Vancouver remain under pressure, with sales volumes weak and affordability at multi-decade lows. Higher borrowing costs have frozen many would-be buyers out of the market, even as demand for rentals surges.

The Policy Balancing Act

The BoC’s mandate requires it to balance price stability with economic growth. Strong hiring may force the central bank to hold off on rate cuts in the short term, even if that prolongs household debt stress.

Governor Tiff Macklem has previously warned that cutting rates too quickly could reignite inflationary pressures, particularly in housing. Friday’s jobs numbers make that warning more urgent.

“The Bank will likely adopt a wait-and-see approach,” said a Toronto-based housing economist. “Policymakers will want to see multiple months of cooling in employment and wages before they feel comfortable cutting.”

Outlook

Looking ahead, economists say the timing of rate cuts may now shift toward early 2026 unless the labour market begins to show more meaningful signs of weakness. For now, Canadian households will need to brace for continued high borrowing costs.

With delinquencies on the rise and a wave of renewals looming, mortgage stress is expected to intensify across the country. Unless wage growth keeps pace, financial pressure on households could spread more broadly into the economy.