Market Insights: Rates, Inflation, and Private Assets

Jonathan Adomait |
Categories
Finance

The story of 2025 isn’t just about high interest rates — it’s about divergence. While the Bank of Canada has started trimming its benchmark rate to ease pressure on heavily indebted households, the U.S. Federal Reserve has kept policy much tighter for longer. This has opened up a meaningful gap between Canadian and U.S. rates, with ripple effects on currencies and borrowing costs.

The Canada–U.S. Rate Divide

  • In Canada: The BoC has cut its benchmark policy rate to 2.5% (September 2025), recognizing that households here carry higher debt loads and are more sensitive to mortgage renewals and borrowing costs. Inflation has cooled enough to give them some room to act.
  • In the U.S.: The Fed has been slower to ease, with its target range at 4.00–4.25%. A stronger U.S. economy and stickier inflation have allowed them to maintain restrictive policy.

Why this matters:

  • The Canadian dollar has weakened as U.S. yields look more attractive to global investors.
  • Borrowers in Canada are seeing modest relief, but rates are still high relative to the last decade.

Where Are the Opportunities?

  • Fixed Income: As yields continue to come down, looking at alternative income strategies could make sense.
  • Cash Management: With BoC easing, Canadian high-interest savings rates may drift lower. Shopping around is essential.
  • Equities: Canadian stocks tend to be more interest-rate sensitive, while U.S. equities trade on Fed expectations. Holding both markets with a balanced sector mix helps to be diversified.

A Closer Look at Private Assets

While private assets like real estate funds, mortgage investment corporations (MIC's), and private credit have been popular for their steady yields over the past decade, they don't come without risks. 

  • Several Canadian private real estate and mortgage funds have gated or restricted redemptions, limiting investor access to capital. This includes the Centurion Apartment Reit, Frontenac MIC, Trez Capital (5 Funds), Starlight Capital, KingSett Capital.
  • Gating occurs when redemption requests exceed the liquidity available without forcing fire-sales of assets.
  • These restrictions are reminders that higher yields come with trade-offs in flexibility and liquidity. You don't get higher yields and stable returns without having additional risk of access to liquidity.

Private assets can still add value in portfolios — but they need to be sized appropriately, well researched and paired with liquid assets.

Financial Planning Ideas for Fall 2025

Market divergence and high rates don’t just affect investments — they influence broader financial planning too. Here are some timely actions to consider before year-end:

  1. Review Debt Strategies
    • If you have a mortgage renewal approaching, compare fixed vs. variable in light of BoC cuts.
    • Consider whether to accelerate debt repayment with rates still elevated versus investing extra cash.
  2. Maximize Registered Accounts
    • 2025 TFSA room is $7,000 — check if you’ve contributed.
    • RESP contributions may qualify for 20% CESG grant; “back-to-school” season is a good reminder to top up.
    • For those turning 71 this year, RRSP to RRIF/LIF conversion planning is critical.
  3. Tax-Loss Harvesting
    • With equity volatility, there may be opportunities to crystallize losses before December 31 to offset gains.
  4. Balance Liquidity
    • If you’re invested in private funds, ensure you hold enough liquid assets for short-term needs in case redemptions are delayed.

As we head into the fall season we will be reaching out for regular planning/update meetings, however if you want to meet earlier feel free to reach out!

Best, 

Jon


Jonathan Adomait
Financial Planner | CFP, CIM, B.Eng