Macklem Says U.S. Borrowing Could Lift Canadian Costs: What a "Neutral" Range Means for Fixed Mortgages
Why a mortgage in Kitchener can be affected by U.S. government borrowing, and what the Bank of Canada's neutral range does and does not tell you.
The short version
- In an interview reported October 30, Governor Tiff Macklem said U.S. fiscal policy is not on a sustainable track and that some of the rise in U.S. longer-term borrowing costs spills over into Canada.
- He said high government borrowing worldwide may be lifting Canada's neutral interest, which the Bank currently estimates at 2.25% to 3.25%, and that the Bank reviews that range once a year, in April.
- Fixed mortgage pricing follows bond yields, so what happens in global bond markets matters to a five-year fixed.
- None of this predicts a payment. It explains why fixed and variable can move in different directions.
What Macklem said
Bank of Canada Governor Tiff Macklem gave an unusually blunt assessment of U.S. borrowing in an interview with Bloomberg News, published October 30, two days after the Bank raised its overnight target to 2.5%.
According to Bloomberg, via Canadian Mortgage Trends, Macklem said U.S. fiscal policy is not on a sustainable track and needs to get on one. He pointed out that the U.S. has good growth and relatively low taxes, so the scope to reduce deficits exists, and called it a question of political will.
Bloomberg reported that the U.S. federal deficit widened to nearly $2 trillion in fiscal 2026 and is around 6% of U.S. gross domestic product, compared with about 2% for Canada, based on estimates it compiled.
Why a U.S. deficit reaches an Ontario mortgage
Macklem said Canada's financial markets are closely integrated with the U.S., so some of the increase in U.S. longer-term borrowing costs spills over. Higher energy prices and expectations of central-bank increases are also pushing yields up, according to the same report.
This matters because five-year fixed mortgage pricing tracks the five-year Government of Canada bond yield more closely than it tracks the Bank's overnight target. Canadian Mortgage Trends reported on October 1 that the five-year yield had risen from roughly 2.6% before the war in Iran began to above 3.6%, and that CIBC and TD had raised select three and five-year fixed pricing. That report is the best summary of the connection.
What "neutral" means, and why it matters here
The neutral interest is the level at which borrowing costs neither stimulate nor restrain the economy. The Bank's current estimate is a range of 2.25% to 3.25%, per Bloomberg. With the overnight target now at 2.5%, it sits inside that range, a little below the middle.
Macklem said government borrowing and heavy corporate borrowing to fund artificial intelligence investment may be pushing neutral higher. He also said the Bank is not revising its estimate now, and that it revisits the number once a year, in April.
- A neutral range is an estimate, not a target the Bank is aiming at.
- A higher neutral would mean that today's overnight target is less restrictive than it looks.
- It says nothing about the timing of any change, which the Bank says it will take one decision at a time.
What to do with this if you are renewing or buying
Global bond markets are not something an Ontario homeowner can predict. What you can control is how much room your budget has if costs are higher than the day you sign.
- Ask your lender how long a quoted fixed offer is held, and whether a pricing hold is available on a purchase. Hold terms differ by lender.
- Compare the total picture, not only the headline. A shorter term, an open feature or a bigger prepayment allowance can matter more than a small difference in pricing.
- Test your payment at a higher outcome than today's, using a calculator that applies Canadian semi-annual compounding for fixed terms.
Our calculators do exactly that, and our article on why bond markets drive the fixed versus variable choice goes deeper on the connection.
For purchases, the pre-qualification tool shows what a lender's stress test would allow before you commit to a price.
Nearly thirty years in Canadian financial services, based in Waterloo Region and working across Ontario. Most people are handed a product — you deserve a plan.
Everything here is illustrative and subject to lender approval and final terms. Figures are examples built on stated assumptions, not quotes, and lender policies differ. This is general information, not personal advice.
Sources: Bloomberg via CMT — Macklem warns U.S. deficits could push up Canadian borrowing costs · Canadian Mortgage Trends — Fixed mortgage rates continue to climb as borrowers weigh the variable discount · Bank of Canada — Bank of Canada raises the policy interest to 2½% (28 Oct 2026)