BoC Tiff Macklem told lawmakers overnight that the central bank’s recent policy easing reflects both cyclical weakness and deeper structural challenges facing the Canadian economy. Macklem reiterated that last week’s 25bps rate cut to 2.25% — the second in as many meetings — was aimed at supporting growth amid “contained inflationary pressures.”
Macklem laid out four key messages in his remarks. He said U.S. tariffs and trade uncertainty have significantly weakened Canada’s economy, leading to expectations of “very modest growth” through the rest of 2025, with “some pickup” only by 2026. The trade conflict, he noted, is also producing offsetting inflation dynamics — dampening overall demand but raising input costs for businesses. As a result, these opposing forces should “roughly offset,” keeping inflation near the BoC’s 2% target.
Crucially, Macklem warned that the current slowdown is “more than a cyclical downturn.” He described it as a “structural transition”, arguing that U.S. trade actions have permanently reduced Canada’s productive capacity. The damage from tariffs, he said, has lowered potential growth and limited the central bank’s ability to stimulate demand without reigniting inflation.
“Monetary policy can help the economy adjust as long as inflation is well-controlled,” Macklem emphasized, “but it cannot restore the economy to its pre-tariff path.”
Looking ahead, Macklem suggested that the current policy rate is now “about the right level” to balance inflation control with economic support. The message signals a likely pause in further easing, barring new shocks.
