By Promit Mukherjee
OTTAWA (Reuters) -Bank of Canada Governor Tiff Macklem said on Thursday a policy shift in the U.S. was causing uncertainty and President Donald Trump’s tariff threats were already impacting businesses and households.
Trump agreed on Monday to temporarily pause a 25% levy on almost all imports from Canada and Mexico, which if implemented could have pushed the economies of both the countries into a whirlwind of recession and higher prices.
The tariffs have been suspended for a month, the U.S. government said this week.
“Trump’s threats of new tariffs are already affecting business and household confidence, particularly in Canada and Mexico,” Macklem said while virtually addressing a conference held in Mexico City.
“The longer this uncertainty persists, the more it will weigh on economic activity in our countries,” he said.
The Bank of Canada said last month the threat of tariffs was making economic projections difficult, but cautioned that a 25% tariff could cause major economic damage.
In his prepared remarks on Thursday, Macklem said if significant broad-based tariffs were imposed, they would reduce long-run prosperity, which monetary policy cannot change.
But besides the looming tariffs, other headwinds were also posing challenges for monetary policy such as prospects of war, rising trade protectionism, economic fragmentation, the advent of new technologies and catastrophic weather events, he said.
“In a world with more structural change and more negative supply shocks, central banks will be faced with harder choices,” Macklem said, adding that all of the challenges make central banks vulnerable to criticism.
“We will be called ineffective or criticized for not doing enough. And some will challenge our independence,” he said.
The Bank of Canada was criticized during the pandemic when market participants and politicians blamed its monetary policy measures for failing to tame recession and joblessness.
In a report published last month on the review of steps it had taken during the pandemic, the bank said it would improve its communications and its forecasting models to predict future shocks.
Macklem said amid an uncertain world, central bankers will have to rely on their strategies to maintain price stability, communicate clearly on the limitations of monetary policy, create advanced modeling and work collaboratively with other central banks.
“We need to remain evidence-based, technocratic and professional, and free of political influence,” he said.
(Reporting by Promit Mukherjee; Editing by Ismail Shakil and Jamie Freed)
