Key Facts
• January 28: Bank of Canada holds policy meeting, keeps key interest rate at 2.25%.
• Governor Macklem cites increased geopolitical risks and U.S. trade policy threats.
• Factors include Trump’s Greenland acquisition interest, Venezuela leadership removal, and repeated tariff threats on Canada.
• Macklem highlights high likelihood of new economic shocks and disruptions.
• Recent discussion with Federal Reserve Chair Powell on Fed independence risks.
• Macklem praises Powell’s work under difficult conditions.
• Unpredictable U.S. policies reduce the U.S. dollar’s value as a global safe asset.
• Bank of Canada’s 2026-2027 growth forecast remains moderate but with higher risk of deviation.
• Macklem states difficulty in assigning probabilities to risks of rate hikes or cuts later this year.
Summary
Bank of Canada Governor Tiff Macklem warned of an unusually high risk that economic forecasts may be disrupted due to rising geopolitical tensions and uncertain U.S. policies. He pointed to President Trump’s interest in acquiring Greenland, efforts to remove Venezuela’s president, and repeated threats of additional tariffs on Canada as factors increasing economic unpredictability. Macklem also identified the independence of the U.S. Federal Reserve as a key risk, noting his recent personal discussions with Chair Jerome Powell, whom he commended for managing challenges effectively. The unpredictability of U.S. policy is weakening the U.S. dollar’s status as a global safe-haven currency, with few alternatives available. While the Bank of Canada maintained its key interest rate at 2.25% and forecasted moderate growth for 2026 and 2027, Macklem emphasized that the risk of these forecasts missing the mark has grown. He also expressed difficulty in predicting whether future monetary policy will lean toward rate hikes or cuts, underscoring the complex risk environment ahead.
