Bank of Canada Remains Preoccupied With The Fallout of U.S. Tariff Policy, Notes Desjardins

12:09 PM EDT, 06/18/2025 (MT Newswires) -- In a speech on Wednesday, Bank of Canada Governor Tiff Macklem said that sectors reliant on trade with the United States have seen declines in employment levels, noted Desjardins.

While that has yet to spread to other sectors of the economy, the governor noted that employment in sectors not directly impacted might still respond with a lag. Surveys of firms in Canada suggest that both exporters and non-exporters expect to shed jobs over the next 12 months.

The governor also noted that outside of volatility in trade, the domestic economy performed poorly in Q1, pointed out the bank.

Typically, central bankers would respond to such a deterioration in both the labor market and broad economy by delivering additional monetary stimulus, but the uncertain path ahead for consumer prices has complicated their calculus. Macklem conceded that the consumer price index data reflected some "unusual volatility."

The Governing Council is concerned that the pass-through from tariffs may transform into a sustainable source of inflation.

As the governor says, the extent of any tariff pass-through will depend on demand and inflation expectations. The outlook for demand looks weak, with data for Q2 already showing a reversal of some of the strength in exports seen in Q1. That said, while longer-term inflation expectations remain anchored, the BoC's surveys suggest that short-term inflation expectations were still elevated in Q2.

Macklem sounded slightly more dovish in acknowledging some of the weakness in recent trade numbers and the possibility that some of the tariff pass-through has already happened, added Desjardins. Still, much will depend on upcoming readings on the labor market, economy and, of course, inflation.

There's plenty of data to be released between now and the next monetary policy decision. In addition, the growing likelihood of a trade deal between Canada and the U.S. raises the possibility that tariffs and counter-tariffs will be a memory by the end of July.

As a result, developments in the coming weeks will play an outsized role in determining whether the BoC eases policy again next month, according to the bank.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.