The Numbskulls

Buried in the rubble of his speech last night, President Trump gave this guarantee to a restive nation: mortgages will be cheaper next year.

Hours later (like he didn’t know…) the latest inflation stats came out, showing a sharp drop in the CPI – from 3% in September to 2.7% last month. Mr. Market jumped a few hundred points in response and the odds of more rate cuts in 2026 surged.

What’s it mean for house prices in Lethbridge and Moncton? We’ll get to that…

Here’s the current thinking. Unemployment in the US is rising and wages have flattened. We all know that without the Mag 7 and AI, America would be in recession right now. But it’s not. With these cooling inflation numbers, there is evidence the impact of tariffs on consumer prices is less than expected (so far). Combined with a flaccid labour market, it paves the way for Fed rate chops.

The central bank, says Bay Street economist Sal Guatieri, “will take much comfort from the report, allowing it to focus on addressing the weakness in labour markets. While one good inflation report may not be enough to trigger a follow-up rate cut in late January (indeed, Treasury yields fell just one beep on the report), a move in March is likely should progress in reducing inflation continue in the new year.”

Yes, and the FedWatch tool reflected that fast, hiking the odds of a March cut.

But that’s just the start, And the inflation fade was not the only reason Trump boldly told Americans that home loans will soon be cheaper. (By the way, he also said ‘historic reforms’ are coming to the real estate market next year – which will probably include his insane 50-year mortgage.)

Trump gets to appoint a new Fed boss in the spring. The mandate of the CB going forward, he’s made clear, will be to cut the cost of money. To that end he’s called the current chair, Jerome Powell, a ‘loser’, a ‘numbskull’, ‘nincompoop’, ‘deadhead’, ‘’Mr. Too Late’ and ‘a complete and total moron’. Trump wanted to get his way – lower rates. Powell refused – until the data supported a cut. And you can bet the new guy (yet to be named) will do what the boss wants.

And, happily, just in time, along comes the inflation data. No doubt about it now. 47 will get his way.

“Today’s data still suggests that inflationary pressures aren’t as strong as feared,” sats CIBC’s Andrew Grantham. “That gives the Fed room to cut interest rates further to respond to the apparent weakening in labour market conditions, and we continue to expect two 25bp cuts in the first half of 2026.”

So the question is: can the US cut rates a half-point in the next few months and our guys not respond? After all, historically our central bank has followed the American one more than 90% of he time. Failure to do so impacts the value of our dollar, our trade and consumer prices. Plus, we are just going into vital talks with the Yanks on the future of our existing free-trade (well, almost free) deal.

Market odds today suggest we little beavers will hold firm. No cut in January. None in the spring or summer. And an almost 80% chance of a quarter point increase in the autumn. In other words, mortgages would stay around 4% until seeing a slight increase in October.

That’s the rational view. Reality may prove otherwise.

Word is the Americans want to gut the Canadian dairy industry in the coming trade talks, and that we’ll end up with a general tariff rate of 15% on US-bound goods, as opposed to the average of 5% now. Concurrent with that is a decline in the Canadian population. We lost 76,000 people in the last quarter, and next year will bring more drastic cuts to immigration and temporary resident levels. Meanwhile people are adopting dogs instead of having babies (I totally get it).

Add it up. Higher tariffs. Lower exports. Increasing unemployment. Steel and cars in trouble. Fewer of us. Even Big Daddy’s massive federal spending plans may not be enough to stimulate us out of the funk.

Given that, will our central bank actually stand tough while American rates devalue the greenback, force up the loonie and exacerbate job losses here?

Nah. Unlikely. So I might change my mind as a mortgage-taker, and go variable. That would shave half a point off the rate and give the opportunity of locking in at a better number late next year.

Then again, maybe Trump lied. Wow. If you can’t trust the American president, we’re all pooched. Oh…

About the picture: “Here’s a shot of Lizard Larry on our rooftop taking in the views, some sun and hopefully a few bugs,” writes Donny G. “Larry and his buddy have been residents on our property since they were little. Feel free to use if you run out good dog pictures. Have a great Christmas!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/12/18/the-numbskulls/