Central bank governor flags price pressures, says more time needed to assess how tariffs will impact economy
Bank of Canada governor Tiff Macklem highlighted ongoing inflation risks and a resilient labour market in remarks that suggest the central bank’s hawkish approach to interest rate policy isn’t changing yet.
Macklem said in a speech in St. John’s, Newfoundland that core inflation gauges indicate price growth may be “firmer than we thought” and underlined the continuing risk posed to the Canadian economy by the ongoing trade war with the US. “We can’t let a tariff problem become an inflation problem,” he said.
The Bank opted to keep its benchmark rate unchanged earlier this month, holding steady at its current level of 2.75%, and Macklem’s Wednesday speech gave no sign that it’s considering a rate cut at its next meeting – scheduled for the end of July – yet.
But the governor also pointed to the uncertainty of the current economic outlook, with little clarity on whether the punishing tariff wave launched by US president Donald Trump earlier this year will ease and no indication yet that a US-Canada trade deal is imminent.
If inflation expectations remain elevated, “people won’t be surprised to see higher prices” and firms may feel emboldened to pass on the cost of tariffs, he said, although lower demand in a weaker economy could also lower the chances of price hikes.
Canada's economy faces political turmoil and a US trade war, influencing fixed mortgage rates. Sherry Cooper, Chief Economist at Dominion Lending Centres, sees five-year bond yields as key, impacted by federal deficits.https://t.co/gQpwv1hFgg
— Canadian Mortgage Professional Magazine (@CMPmagazine) June 12, 2025
Storm clouds gathering over Canadian economy as trade war rumbles on
Economists have sounded the alarm on the potentially severe impact of those tariffs on the Canadian jobs outlook, and Macklem said trade-focused industries are already bearing the brunt of the US measures – although the wider labour market has proven resilient so far.
The federal government and provincial leaders have been engaged in frantic talks in recent months to remove trade barriers within Canada, opening new channels in an effort to offset some of the impact of the US’s levies on Canadian goods.
That will create more “resilience” in the Canadian economy, Macklem said, highlighting oil exports by Newfoundland and Labrador to Europe as an example of a growth opportunity.
But the central bank is clearly in no mood to consider bringing rates lower until it has a clearer picture of how the economy is reacting to the pressures from south of the border.
The Bank cut rates seven times in a row between mid-2024 and the beginning of this year, but has now kept rates unchanged in its last two decisions.
“We are proceeding carefully with monetary policy,” Macklem said. “We want to see through the noise to set policy that supports the economy while ensuring inflation remains low and stable for Canadians.”
On Wednesday, the Federal Reserve took a similar approach in the US, announcing that it was leaving interest rates unchanged after its June decision as it waits to see how the economy fares in the face of Trump’s tariffs.
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