Bank of Canada (BoC) Governor Tiff Macklem noted on Thursday that spillover risk from United States (US) tariff policies remains a key risk to the Canadian central bank’s monetary policy outlook. BoC Governor Macklem’s statements caution that the BoC will likely be pivoting to a more trade-reactionary stance and minimizing forward guidance statements from one meeting to the next, which is an incredibly convenient policy shift for a central bank that has continued to cut interest rates while heading into an inflation uptick.
BoC Gov Macklem delivered a speech titled “Navigating Tariff Uncertainty” at the Calgary Economic Development initiative in Alberta.
Key highlights
BoC needs to set policy that minimizes the risk of errors; that means being less-forward looking than normal.
That may also mean acting quickly when things crystallize, but we need to be flexible and adaptable.
Given high degree of uncertainty about base case, our focus is less on best monetary policy for a specific economic outlook.
There can be no doubt about the bank’s commitment to low inflation.
Monetary policy must prevent initial direct price increases from spreading. We need to make sure a tariff problem doesn’t become an inflation problem.
There remain too many unknowns about tariffs to predict what happens next.
The more inflationary the impact of tariffs, the more monetary policy needs to focus on anchoring inflation expectations.
Canadian economy managed a soft landing. Unfortunately, we’re not going to stay on the tarmac for long.
US tariffs could put downward pressure on Canadian energy prices and reduce the profitability of producers.
We’re not in a situation where there is a single most likely outcome.
We need to think about more than one outcome, and we need to think about a policy that would work for more than one outcome.
At some point, things will get clearer, and we can get back to putting more weight on being more forward-looking.
We’re not talking about double-digit inflation and double-digit unemployment.
We’re going to proceed carefully to provide support to the economy, but without taking our eye off the ball of managing inflation.
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