MNI: BOC Says Policy To Be Less Forward-Looking, More Nimble
MNI (OTTAWA) - Bank of Canada Governor Tiff Macklem said Thursday monetary policy will focus on minimizing competing U.S. trade war risks rather than tackling the most likely economic scenario, and being prepared to act fast when things become more certain.
Officials must meet their mandate of keeping inflation stable through a period where tariffs could turn into broader inflation, even amid contradictory risks of drops in exports and investment and higher prices from tariffs, Macklem said.
"The more inflationary the impact, the less scope monetary policy has to support the economy," he said in the text of a speech he's giving in Canada's oil hub of Calgary, Alberta. Inflation could jump and then quickly fade or have a slower but more persistent effect based on staff modeling, he said.
"We don’t want to see price increases become more broad-based or inflation expectations start to move significantly away from target," he said.
The Governor didn't refer to the boost from the Bank's rate cuts since June that led the G7 or to a new potential recession or period of stagflation. Economists are split between the BOC pausing or cutting further at next month's decision. That meeting comes April 16, two weeks after Donald Trump says he will impose a sweeping 25% tariff.
SEVERAL PLAUSIBLE OUTCOMES
"In a situation of pervasive uncertainty, it’s very hard for any of us on Governing Council to have high conviction about the most likely outcome. Several outcomes can all look plausible," Macklem said in reference to normal briefings ahead of a rate decision.
"We need to set policy that minimizes the risk. That means being less forward-looking than normal until the situation is clearer. And it may mean acting quickly when things crystallize. We need to be flexible and adaptable," he said. Some investors say it's possible the Bank would raise rates if inflation gets too hot, and the Bank has only recently moved back to quarter-point moves after a period of jumbo decisions through the pandemic.
Macklem reiterated on-and-off tariff threats represent "a new economic crisis" for Canada and noted the U.S. faces pain too. "Canadian exports may fall a lot," he said.
Canada sends three-quarters of its exports to the U.S., and those suppliers account for one in ten jobs. Bank officials earlier laid out a scenario where exports would fall 8.5% and investment 12% in the first year of a dispute.