Fed Rate Hike Sets Stage for Potential Mortgage Rate Increase in Canada

The Federal Reserve raised its benchmark interest rate for the first time in three years on Wednesday, and this move is expected to have ripple effects on Canada's mortgage market. The Bank of Canada has stayed on hold throughout the year but may need to respond to currency-driven inflation as a result of the US rate hike.

A US rate hike typically causes US Treasury yields to rise, which in turn pulls Canadian government bond yields upward. This increase in bond yields is passed on to borrowers through higher fixed mortgage rates in Canada.

Variable-rate mortgages, however, are tied to the Bank of Canada's overnight lending rate and are less exposed to Fed moves unless broader inflation or currency pressures force the Bank's hand.