After a full year of interest rate cuts in 2025, economists are no longer aligned on what comes next. Instead of “how many cuts,” the conversation has shifted to something far more uncertain:
👉 Will rates stay frozen, fall again… or actually rise?
At the centre of this uncertainty sits a single issue that economists are calling the defining event of 2026.
The “Defining Issue of 2026”: CUSMA Under Review
Economists at Desjardins Group have made it clear:
the upcoming Canada–United States–Mexico Agreement (CUSMA) review is the biggest economic wildcard for Canada next year.
Why it matters:
Canada’s economy is deeply tied to U.S. trade
Tariffs were threatened — and partially implemented — in 2025
Political uncertainty tied to Donald Trump has made long-term trade stability unclear
While most Canadian exports avoided tariffs in 2025, economists warn that 2026 may bring annual trade reviews instead of long-term certainty — a major red flag for business investment and economic confidence.
As Desjardins economist Randall Bartlett put it:
“Businesses are likely to stay on the sidelines when the future is so unpredictable.”
Where Interest Rates Stand Right Now
After cutting rates by 100 basis points in 2025, the Bank of Canada enters 2026 with its overnight rate at 2.25%.
According to FTSE Russell economists, this level sits at:
“The easy end of the Bank of Canada’s neutral range.”
In plain English?
🔹 Rates are no longer restrictive
🔹 But they’re not stimulative either
🔹 The next move could go up or down
That’s a dramatic change from just one year ago.
Canada’s Economy: Weak, But Not Breaking
Most major banks — including BMO and National Bank of Canada — expect Canada’s GDP to grow 1% to 1.5% in 2026.
That’s:
Below long-term trend
Well above recession territory
The economy isn’t collapsing — but it’s not accelerating either.
This “stuck in neutral” growth outlook is one of the main reasons economists believe the Bank of Canada will sit tight.
Employment Is Holding… Barely
Despite weak hiring, Canada’s labour market has surprised many economists:
Unemployment recently fell to 6.5%
Layoffs remain limited
Population growth has slowed, easing pressure on jobs
Indeed Canada describes this as a “low-hire, low-fire” economy — stable, but fragile.
In a downside trade-shock scenario, unemployment could rise modestly. But under current conditions, economists expect only gradual changes in 2026.
So… Will the Bank of Canada Cut or Hike in 2026?
Right now, markets are sending a loud message.
According to LSEG, there is a 97.9% probability that the Bank of Canada holds rates through 2026.
But not everyone agrees.
Three Competing Scenarios for 2026
1️⃣ Rates Hold (Most Likely)
Trade uncertainty lingers, growth stays weak, inflation remains sticky.
2️⃣ Mid-Year Rate Cut
If growth materially falters or trade tensions escalate.
3️⃣ Late-Year Rate Hike
If inflation proves stubborn and economic resilience continues — a view supported by National Bank economists.
In short: nothing is off the table anymore.
What This Means for Canadian Homeowners & Investors
This environment creates both risk and opportunity.
For homeowners:
Variable-rate relief may be behind us
Locking in certainty could make sense
Home equity is becoming a powerful financial tool
For investors:
Yield remains attractive in private credit
Bank hesitation opens the door for alternative lenders
Capital discipline matters more than ever
This is exactly where strategic mortgage planning becomes critical.
How Lendworth Helps You Navigate 2026
At Lendworth, we don’t wait for the headlines — we plan around them.
Whether you’re:
✔ Refinancing
✔ Accessing home equity
✔ Consolidating debt
✔ Investing in private mortgages
✔ Structuring capital during uncertain rate cycles
Our team understands how interest rates, trade policy, and economic cycles intersect — and how to position you ahead of them.
📞 Speak with a Lendworth expert today: 905-597-1225
🌐 Visit: www.lendworth.ca
Bottom Line
2026 isn’t about guessing rate cuts anymore.
It’s about preparing for uncertainty, protecting your balance sheet, and making smart, flexible financial decisions — before the next policy shift forces your hand.
Your equity deserves more™