Tiff Macklem, Governor of the Bank of Canada, has stated that due to increased geopolitical risk and uncertainty surrounding US trade policies, Canada’s economy is at a high-risk of experiencing a shock.
Macklem told Reuters in an interview on Wednesday that the economic forecasts of the central bank could be affected by more factors than normal.
Macklem said, “There’s a rare potential for new shocks, new disruptions.” Geopolitical risk is increasing.
He listed several factors that when taken together would threaten Canada’s economy.
This includes the threat made by US president Donald Trump to Greenland and the ouster of Venezuela’s head. He has also repeatedly promised more tariffs against Canada.
Macklem says that such actions could worsen an already unstable global climate, and increase the likelihood of predictions not coming true.
Forecasts are more susceptible
The Bank of Canada’s most recent report on monetary policy released Wednesday new inflation and economic growth estimates and declared that interest rates would remain unchanged.
These projections are mostly consistent with those published in October, and indicate a small increase for 2026 and 2027.
Macklem claimed the risks associated with projections had grown despite this continuity.
This forecast has more problems, we believe. He said, “This forecast is more vulnerable.”
Macklem pointed to Trump’s statement on Saturday, that the US will impose a tax of 100% on Canada for pursuing a trade deal with China. This is the type of shock which could disrupt an outlook.
He also mentioned that the United States’ free-trade agreement with Mexico and Canada, as well as other risks, was being reviewed.
It is difficult to determine the policy direction
Macklem’s remarks at an earlier press conference have been interpreted by some economists to be in favor of boosting growth. Others speculated that Macklem’s tone has shifted towards a decrease in interest rates.
Investors expect that the likelihood of an interest rate increase will be greater in the final quarter. Financial markets, however, are not pricing any rate reductions until 2026.
Macklem stressed the difficulty of evaluating the balance between risks when asked whether the risks were more likely to increase or decrease later in the calendar year.
He said, “You have to be able assign probabilities to risks in order to make a comment about the balance.” To be honest, I don’t think that we are doing well with this.
This uncertainty reflects the wide range of possible consequences that can be associated with decisions made in trade policy and developments geopolitical, most of which are beyond Canadian policymakers’ control.
Federal Reserve Independence in Focus
Macklem says that attacks on the independence of the US Federal Reserve are another major concern for this year.
Trump claimed that he had recently spoken to Fed chair Jerome Powell, given his open call to the Fed for lower rates.
The problem is causing concern among central bankers in the entire world.
In response to the threat by Trump’s government of criminal prosecution, several central bank leaders, including Canada, issued a statement in support of Powell.
Macklem said that Powell was told privately by Macklem in a private conversation, “Despite the difficult conditions you are facing, Powell is doing an excellent job.” He stressed that the Fed is not just limited to America.
He said that a Federal Reserve which stabilizes the US economy is beneficial to both the US as well as Canadian economies. No one benefits from a Federal Reserve which does not offer predictability.
The Canadian Financial Stability and Trust in American Institutions are intimately linked, said Mr. He.
This article Bank of Canada warns of “unusual” economic shocks due to rising geopolitical tensions appeared first on the ICD
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