Bank of Canada Governor Addresses Economic Uncertainty

By Promit Mukherjee
OTTAWA (Reuters) – Bank of Canada Governor Tiff Macklem stated on Thursday that a policy shift in the U.S. is causing uncertainty, with President Trump’s tariff threats already affecting businesses and households.

Trump agreed on Monday to temporarily pause a 25% tariff on nearly all imports from Canada and Mexico. Implementation could have led both economies into recession and higher prices. The U.S. government announced the tariffs would be suspended for one month.

Macklem noted that Trump’s threats are undermining confidence in business and households, particularly in Canada and Mexico. He warned that prolonged uncertainty could weigh heavily on economic activity.

The Bank of Canada has indicated that the impending tariffs complicate economic projections and cautioned that a 25% tariff could result in significant economic damage.

In his prepared remarks, Macklem argued that significant broad-based tariffs would diminish long-term prosperity, a change beyond monetary policy’s reach.

He also highlighted other challenges for monetary policy, including potential wars, rising trade protectionism, economic fragmentation, advancing technologies, and catastrophic weather events.

“In an environment characterized by structural change and negative supply shocks, central banks face increasingly difficult decisions,” Macklem stated, acknowledging that these issues render central banks open to criticism.

During the pandemic, the Bank of Canada faced criticism over its monetary policy measures, which were blamed for failing to mitigate recession and unemployment. Following this, the bank announced plans to enhance communication and forecasting models.

Macklem emphasized that central bankers must rely on their strategies to ensure price stability, communicate limitations, develop sophisticated modeling techniques, and collaborate with other central banks.

“We need to be evidence-based, technocratic, professional, and free from political influence,” he concluded.