Bringing interest rates lower 'risks stoking future inflation,' BoC governor says
Bank of Canada governor Tiff Macklem used a Toronto speech to caution that cutting interest rates too aggressively, while the economy is working through deep structural shifts, risks reigniting inflation and prolonging the country’s adjustment.
He framed United States tariffs, artificial intelligence and slowing population growth as lasting shocks, not just a rough patch the central bank could smooth over with lower borrowing costs.
“We have to be careful not to misdiagnose economic weakness,” Macklem said in a speech at the Empire Club in Toronto. “Monetary policy should not try to compensate for lost supply.
“Lowering interest rates in the face of weak economic activity risks stoking future inflation if the weakness is due to lower productive capacity rather than a cyclical downturn in demand,” he said.
“And there is also a risk that overstimulating demand when the problem is structural could delay needed structural change.”
Similarly, one high‑profile economist believes Canada has slipped into a clear recession watch, with little to show so far for 275 basis points of easing.
In a new Rosenberg Research report, chief economist David Rosenberg pointed to falling per‑capita GDP, annual growth of roughly 1% and weakness in housing and manufacturing. Home prices were down about 2% year over year and manufacturing output fell around 5%, according to the study.
David Rosenberg of Rosenberg Research says 275 basis points of Bank of Canada easing delivered only ~1% growth, with home prices down 2% YoY and manufacturing output off 5%, signaling recession risk and weak housing demand.https://t.co/2x7kvAlJDA
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 4, 2026
Structural shifts and the mortgage market
Macklem said US trade actions on steel, aluminum, autos and lumber already hit Canada’s economy hard, arguing that “the path for potential output is lower because of increased trade friction and slower population growth.”
At the same time, he warned that businesses have been slow to adopt AI and to diversify beyond the US market.
“How Canadian households, businesses and governments respond to these structural breaks will determine our future prosperity,” he said.
“We can be victims of U.S. tariffs and AI disruption, or we can lean into structural change, expand our internal market, diversify our trade, embrace new technology and raise our productivity.”
A slower‑growing labour force
Macklem also highlighted demographics as a drag on non‑inflationary growth. Slower population gains, including a drop in immigration, meant “the labour force will hardly grow at all” over the next few years, he said, adding that “growth will be modest. In time, the economy restructures and productivity and potential output pick up, but this will be measured in years, not quarters.”
With the policy rate holding near 2.25% and markets pricing only gradual easing, mortgage professionals are navigating a landscape where payment shock meets weaker potential growth, not a quick return to pre‑pandemic conditions.
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