Governor Cautions on Economic Impact of Potential U.S. Tariffs
OTTAWA – Bank of Canada Governor Tiff Macklem has warned that the central bank has limited tools to cushion the economic impact of a potential trade war, should the U.S. follow through on its tariff threats and Canada retaliates.
In prepared remarks for a speech on Friday, Macklem cautioned that such a scenario would weigh heavily on Canada’s economic growth while also driving inflation higher.
“The Bank of Canada can help the economy adjust to a trade shock by lowering interest rates to support consumer demand,” Macklem stated. However, he emphasized that cutting rates too aggressively could reignite inflationary pressures, limiting the central bank’s ability to respond effectively.
Over the past several months, the Bank of Canada has reduced interest rates as inflation has moderated from its peak and the economy has shown signs of stagnation. However, the weakening Canadian dollar—partially driven by these rate cuts—could face further depreciation in the event of a trade war, Macklem warned.
As policymakers brace for potential tariff escalations, the central bank’s balancing act between inflation control and economic stimulus becomes increasingly complex.