Why a flurry of rate cuts is a real possibility under Trump's new Fed chair

Kevin Warsh, President Trump’s choice for next Federal Reserve chair, can’t simply snap his fingers and move interest rates dramatically lower – that much is clear.

But the influence the leader of the Fed can exert over fellow decisionmakers, many of whom look to the chair for direction on rate policy, suggests Warsh may have less trouble convincing members of the Federal Open Market Committee (FOMC) to vote for rate cuts than some analysts believe, according to a top mortgage lawyer.

Marty Green (pictured top), principal at Polunsky Beitel Green, told Mortgage Professional America he doesn’t necessarily subscribe to the view that Warsh, as just one of 12 FOMC members, would be blocked from pushing through cuts by a hawkish majority on the committee.

“I think one of the dynamics about the Fed that’s really interesting is that if you feel strongly as a current governor or one of the committee participants, you certainly are entitled to vote your conscience, and we see people do that with dissents from time to time,” he said.

“But generally, they kind of operate pretty unanimously for the most part and I think that’s partly because there’s a protocol that if you’re on the fence about it or you see possibilities both ways, you have a tendency to vote with the chair. And so I think that’s to some extent where that is going to come into play and be more important – those votes where people could see some case for cutting rates.”

Will Fed members continue to follow the leader under Warsh?

Current Fed chair Jerome Powell, whose term expires in May, has taken a careful approach to rate policy in recent years, frequently drawing Trump’s ire for refusing to consider big reductions.

FOMC members have generally endorsed that approach, with only two – Stephen Miran and Christopher Waller – voting against last week’s decision to hold rates steady instead of cutting by 25 basis points.

Warsh, though, will be expected by Trump to take a more dovish approach and advocate lower rates – and Green sees other Fed decision-makers being receptive to that view.

“If the chair is voting towards cutting rates, [other FOMC members] may follow suit,” he argued, “just because I think they see that as an important element of the Fed – to act as unanimously as possible and so that protocol may be followed.”

That’s not to say they’ll be easily swayed. Much will depend, Green said, on how quickly Warsh is able to establish credibility with other committee members and how strong his argument is that rates could be lower.

Warsh’s time as a member of the Fed’s board of governors between 2006 and 2011 could prove helpful, Green said, giving him more of an understanding of the central bank’s inner workings than some of the outsider candidates who were reportedly in the race to succeed Powell.

And a shift away from Powell may also mean a change in how the Fed judges the economy’s current health and where it’s headed in the coming months.

“I think Warsh may be wanting to look at additional data and bring a fresh perspective of what might provide better guidance for where the economy is going in the future,” Green said. “He’s certainly been critical of how the Fed has done things in the past, which is one of the reasons that I think he was attractive to the president.

“So I do think there will be some change in terms of how they view data, what data they look at, and how much weight they give to it.”

Expect a big push by Warsh to bring other FOMC members on board

Warsh’s first meeting as Fed chair – if he’s confirmed – is scheduled to take place in June. Markets currently see that decision as the likely first rate cut of the year, although Green said it might take longer for Trump’s choice to bring the other FOMC members around to his way of thinking.

“I don’t know that he’ll be able to change their opinion at the first meeting,” he said, “but how he presents the data at the first meeting may actually set the stage for… perhaps doing a cut [later] and maybe doing a more significant one if they delay it.”

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What Trump’s Fed pick means for Canada

Donald Trump ended months of speculation last week by naming his choice to lead the Federal Reserve when current chair Jerome Powell’s term expires in May, a decision that could have big implications for Canada.

The president announced on Friday he had chosen Kevin Warsh – a former bank executive and member of the Fed’s board of governors in the late 2000s – to head the central bank, ending a race that was closely followed by Canadian financial and mortgage market watchers.

The Fed’s approach to interest rates strongly impacts US Treasury yields, which in turn have a big effect on Government of Canada bond yields and, by extension, Canadian fixed mortgage rates. That means even though the Fed doesn’t decide policy for Canada, its decisions set the backdrop for mortgage rates here.

It’s also significant because a big divergence between the Fed and the Bank of Canada can put pressure on the loonie – and Trump has long advocated much steeper US rate cuts, which could leave the Fed substantially more dovish than the Bank of Canada if policymakers in Ottawa stay cautious.

Warsh was viewed by some observers as a surprisingly hawkish pick for the Fed by Trump, having often highlighted the risk posed to the inflation outlook by lower interest rates. But the president will likely still expect the incoming Fed chair to slash rates, potentially complicating the outlook for the Bank of Canada.

The good news for Canada: Warsh could find the task of dramatically cutting rates much easier said than done.

Why the new Fed chair may not be able to cut rates right away

Speaking to Canadian Mortgage Professional last week before Trump announced Warsh as his pick, Bank of Montreal (BMO) chief economist Doug Porter (pictured below) noted financial markets were taking a calm approach to the impending decision – potentially because a Fed chair can’t simply snap their fingers and lower rates.

“What I find interesting is that financial markets, which know darn well what’s going on here, are really not pricing in anything unusual for the rest of the year,” he said. “In the US financial markets, they’ve got just a little bit less than two rate cuts built into the market forecast through the rest of this year, with most of it starting around the June meeting and then another one in the second half of the year at some point.

“That’s not exactly a radical forecast. So despite all the noise around the Fed, the market’s still pretty comfortable that nothing really unusual is going to transpire for US interest rates this year, because I think the view is that the governance structures there will not allow a new Fed chair to just rule the roost and do whatever they want.”

The Fed chair is just one of 12 decisionmakers on the Federal Open Market Committee (FOMC), which votes on rate policy at eight scheduled meetings each year.

Two FOMC members voted for a rate cut in last week’s decision – but 10 favoured a hold, meaning supporters of a 25-basis-point reduction were comfortably outnumbered.

“There are 12 voters on the FOMC. And precious few of them turn over in any given year,” Porter said. “So even though there’s a lot of noise around the Fed, the market’s view – and I think, most forecasters’ view – is not a lot is really going to happen in terms of what really goes on with US interest rates.”

Other US-Canada challenges lie ahead for BoC

While that means the Bank of Canada may be able to breathe a sigh of relief for now on the Fed’s potential impact on its own rate policy, plenty of other aspects of the US-Canada relationship continue to present challenges for the year ahead.

There’s no sign of an end to the trade tensions that have rumbled since Trump launched his wave of global tariffs last year – and the Canada-United States-Mexico Agreement (CUSMA) is also up for review in July, sparking the prospect of difficult and complex negotiations.

Bank of Canada governor Tiff Macklem suggested those discussions could complicate the economic outlook for the year ahead, although Porter didn’t detect any panic from the central bank.

“I actually have the sense they’re quietly optimistic on that front, probably more so than I am,” he said. “I’m personally quite concerned about them actually being able to reach a deal this year. But I would love to be surprised.

“I think they know these are not going to be easy negotiations. Canada is probably going to have to give way on something. It’s just a matter of where and by how much.”

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Why mortgage renewals in 2026 might not be the crisis once feared

After seeing the first wave of pandemic-era mortgages come up for renewal last year, Canada is facing another renewal surge in 2026 as five-year mortgages terms draw to a close.

A dramatic spike in interest rates in 2022 and 2023 – when the Bank of Canada began hiking aggressively to tackle an inflation crisis – heightened fears that those COVID-era homebuyers, who took advantage of rock-bottom rates in 2020-21, could face sharp pain at renewal time.

Experts even flagged the risk that renewal wave could pose to the Canadian economy. The International Monetary Fund (IMF) described mortgage renewals, along with soaring household debt and cyber and pension oversight shortcomings, among the biggest threats to Canada’s financial system last year.

But some of the alarm surrounding mortgage renewals has eased thanks in part to a flurry of rate cuts by the Bank of Canada in 2024 and 2025, more than halving its benchmark rate and offering some much-needed relief to Canadian borrowers.

Between July 2023 and the start of June 2024, that policy rate – which leads variable mortgage rates and home equity lines of credit (HELOCs) in Canada – hovered at 5%, its highest level for 22 years.

A rate hold this week continued what many observers expect to be a prolonged pause for the central bank. But it cut rates nine times last year and in 2024, meaning many borrowers whose mortgage is up for renewal face a much less severe rate environment than at the height of the BoC’s inflation war.

Last September, Bank of Montreal (BMO) senior economist Robert Kavcic said those cuts meant rate shock would prove “meaningful but manageable” in 2026 for most borrowers, easing further by the middle of 2027.

And TD economist Maria Solovieva also views a better outlook for borrowers than before. “It’s a bit like that ankle injury you got in a dance class or on the field as a teenager,” she wrote last summer.

“It didn’t hurt too much at the time, but years later it still keeps you from sprinting. In economic terms, most mortgage borrowers will manage, but with less financial flexibility.”

Broker sees little to fear in 2026 renewal wave

So far, mortgage brokers – even in Canada’s priciest markets – haven’t reported a jump in renewal pain at the beginning of 2026.

Taz Zaide (pictured top), a Toronto-based broker with 6ix Mortgage Group, told Canadian Mortgage Professional his clients had proven largely resilient when renewal time came around.

About 60% of his company’s business has been renewal-focused since the beginning of the year, he said, with few if any nightmare stories among borrowers.

“All the clients that we’ve had who’ve been up for renewal have basically just been fine with qualification,” he said. “They fit within the guidelines. There’s been no issues on that end.

“Luckily, people coming up for renewal are not cash-strapped or in debt, at least from the portfolio of clients that we have/ They’ve been able to manage and now they’re just renewing regularly without needing to consolidate any money.”

Variable borrowers see further relief from recent years

Variable rate uptake skyrocketed at the onset of the COVID-19 pandemic after the Bank’s decision to slash rates, with their popularity showing no sign of slowing amid reassurances by Bank governor Tiff Macklem that borrowing costs “are going to remain very low for a very long time.”  

Borrowers on variable rates with non-fixed payments saw plenty of mortgage turbulence when the Bank suddenly began hiking rates in 2022. But while that shift caused acute pain, it also means those borrowers are actually seeing relief at renewal time with rates having since dipped.

“A lot of people took variable in 2021, back when the rates were 1.5% or so,” Zaide said. “Maybe 70% of people were getting pushed into variable. And then obviously in 2022 and 2023, variable rates rose dramatically.

“These guys were sitting at 5%, 5.5%. Now they’re coming back down to 3% so they don’t really have an issue with affordability, which is my hypothesis as to why it’s been kind of fine at renewal time The majority of people have already seen the worst of it when their rates jumped up to 5%, so now this is kind of a blessing for them to be able to lock into the threes.”

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Reactions flood in as BoC announces latest rate call

The Bank of Canada’s decision to leave its overnight rate at 2.25% kept borrowing costs unchanged, but not the pressure facing borrowers heading into a heavy renewal cycle. The hold follows a year‑over‑year uptick in inflation to 2.4% and an unemployment rate that climbed to 6.8% in December.

Analysts across the mortgage industry said the pause entrenched a buyers’ market in many regions while underlining renewed focus on debt service and job security.

Buyers’ market deepens as competition rose

“While this rate hold provides some stability, other factors such as economic uncertainty, potential job loss and affordability are continuing to put downward pressure on the housing market,” Victor Tran, mortgage and real estate expert at Rates.ca, said.

“The housing market is currently very much in buyers’ favor. Motivated sellers should be aware of the increased competition and price accordingly.”

Tran said renewal and refinancing volumes rise as purchase activity cools.

“Even as the market slows, renewal activity is increasing, with homeowners searching for more competitive rates or exploring options such as extended amortizations to keep monthly mortgage payment costs in check,” he said.

According to Rates.ca’s mortgage quoter, renewal quotes as a share of total quotes rose by 16 percentage points year over year in December 2025, underscoring how borrowers shifted from buying to defending their existing positions. 

Fixed, variable and the renewal crunch

Recent bond‑yield volatility and lender competition for renewals meant some pricing pockets improved despite the hold.

“Recently there have been some decreases on three‑year fixed rates, making them competitive with five‑year fixed rates,” Tran said.

“While a three-year fixed rate sets up a homeowner to take advantage of a potentially lower interest rate environment in several years, it also can keep prepayment penalties in check if the homeowner decides to sell within the three-year term.”

Licensed mortgage broker and LowestRates.ca expert Leah Zlatkin said the pause left affordability “essentially unchanged” but gave borrowers clearer sightlines.

“Affordability stays essentially unchanged with today’s hold, and that stability is important for buyers who have been waiting for clearer signals,” Zlatkin said.

“Rates are expected to remain relatively steady in the near term, which gives buyers clearer direction after months of uncertainty.”

She pointed to a growing gap between borrower perceptions and how mortgage pricing actually works.

“Some buyers and homeowners are still waiting for the right moment, in part because there’s confusion about what Bank of Canada decisions actually influence,” Zlatkin said.

“Fixed mortgage rates are driven by the bond market, not the policy rate, and those have already moved higher. At this point, waiting for a meaningfully lower fixed rate is unlikely to deliver the savings many people are hoping for.”

Renewals, job risk and borrower psychology

Bank of Canada research indicated that about 60% of mortgages renewing in 2025 and 2026 are still expected to face higher payments, even after substantial rate cuts from mid‑2024 peaks, with average increases of around 10% for 2025 renewals and 6% for those in 2026. 

Refinancing emerged as another safety valve. “Homeowners that are looking into refinancing are interested in consolidating debt and freeing up liquidity to ride out today’s challenging times,” Tran said.

Yet he warned that falling prices could limit how much equity borrowers could tap.

The maximum conventional refinance remains capped at 80% of appraised value, less registered loans, meaning any price decline directly erodes accessible equity. 

Zlatkin said more borrowers use the current pause to renegotiate, extend terms or reconsider product mix rather than to rush into new purchases.

“We’re seeing fewer new purchase applications, alongside increased activity tied to renewals and refinancing,” she said.

“With fewer buyers competing for listings, softer pricing in some markets, and higher inventory, prepared buyers are finding more room to negotiate.”

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!

BoC preview: January decision unlikely to stir a housing market revival

With the Bank of Canada readying its first interest rate announcement of the year on Wednesday (January 28), few in the mortgage industry are expecting a cut to help jolt the housing market back into life.

It’s widely thought the central bank will keep its benchmark rate – which directly influences variable mortgage rates and home equity lines of credit (HELOCs) – unchanged, holding steady as it waits to see how the economy fares in the opening months of 2026.

Next BoC change ‘more likely to be a hike’

Inflation came in hotter in December than 12 months before, jumping to 2.4% and essentially nixing any faint hopes the Bank might be tempted to cut rates this month.

And some experts believe that while the central bank is likely to stay on pause for the foreseeable future, a hike appears more plausible than a cut as its next move.

Royal Bank of Canada (RBC) senior economist Claire Fan sees the Bank holding its policy rate steady at 2.25% throughout this year, with “the next change in interest rates… more likely to be a hike.”

That means homebuyers holding out for lower rates on the variable side this year aren’t set for significant relief – and fixed rates mightn’t see meaningful movement either. Five-year Government of Canada bond yields, which lead fixed rates, have slipped since December but are still hovering well above where they lay in late October.

The mortgage industry shouldn’t be counting on rate cuts to spur a housing market revival anytime soon, according to Ownright co-founder and chief operating officer Joel Fox (pictured top).

He told Canadian Mortgage Professional that the current rate environment and ongoing geopolitical unrest were likely to keep market activity muted as buyers grapple with economic uncertainty.

“We have pretty strong indications that rates aren’t going to drop much further in the near term and if anything, I think the worry is that we might start moving the other direction if things continue the way that they are in terms of the unpredictability of the world,” he said.

“And then I think you just layer on the kind of constant state of anxiety that we as Canadians are feeling right now and it’s going to be hard to want to make a move there.”

Latest Trump threats cast housing outlook into fresh doubt

At the weekend, US president Donald Trump ramped up tariff threats on Canada, vowing to put a 100% levy in place on Canadian imports across the border if Mark Carney struck a trade deal with China.

Bank of Canada governor Tiff Macklem seems likely to reference the ongoing trade turmoil in tomorrow’s statement accompanying the rate announcement, and it remains to be seen whether an aggressive US approach toward Canada this year will change the central bank’s approach to interest rates.

Still, the lingering threat of US tariffs and fears of big job losses as a result were two of the main reasons Canada’s housing market remained muted throughout 2025.

Fox said that uncertainty looks set to spill over into this year, although a certain cohort of buyers will probably remain active in the market: those who need, rather than want, to move.

While those Canadians will probably make less than they might have before on the sale of their home because of the cooler overall market, they should also face a better purchase environment, he highlighted.

“I think the group of people that’s going to be least impacted by this is those that are looking to sell and buy within the same market,” he said.

“As long as you’re looking to do both transactions within the same time horizon and in the same market, whatever you lose on the sale, you’ll hopefully gain on the buy so you can come out even there.”

And as always, there’s likely to be plenty of clamour to purchase among first-time homebuyers hoping to leave the rental market and get their foot on the housing ladder.

“I think first-time homebuyers might be the ones that are most likely to jump off the sidelines sooner,” he said, “just because there’s probably the anxiety about getting their foot in the door in the market and the desire to start building up equity.”

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!