Bank of Canada Governor Macklem says structural headwinds and potential US tariffs will force harder monetary policy trade-offs

Bank of Canada Governor Tiff Macklem used remarks to the Bank for International Settlements to argue that central banks are operating in a more shock-prone global economy where structural change and negative supply shocks will make monetary policy choices harder. He highlighted uncertainty linked to a shift in United States policy direction and the prospect of broad-based tariffs, warning that monetary policy cannot offset the long-run efficiency and productivity losses from such measures and may face sharper near-term trade-offs between inflation and output. Macklem pointed to higher long-term interest rates, elevated sovereign debt, slower growth and weak productivity as factors that increase vulnerability to shocks, compounded by war, rising trade protectionism and economic fragmentation, technology disruption including artificial intelligence, and more frequent catastrophic weather events linked to climate change. On tariffs, he said they could reduce demand for exports while simultaneously pushing up inflation through a weaker exchange rate, retaliatory tariffs, and supply chain disruptions, leaving central banks with a single policy rate instrument that cannot fully counter weaker activity and higher inflation at the same time. He argued for clearer communication about what monetary policy can and cannot do, greater investment in supply-side data and modelling to analyze sectoral shocks and uncertainty, deeper engagement with households and businesses, continued international cooperation, and sustained independence, transparency and accountability.