Macklem Takes Cautious Stance on Interest Rates Amid Trade Uncertainty

Bank of Canada Governor Tiff Macklem is taking a cautious approach to interest rates as the central bank grapples with competing forces that could impact inflation and economic growth. Speaking in Halifax, Nova Scotia, Macklem said rate policy will be guided by how firms and households respond to elevated energy prices and trade uncertainty.

Macklem noted that readings that strip out volatile items like food and energy indicate price increases are closer to 2%, or the Bank of Canada's inflation target. However, he expects inflation to edge upward from 3% as long as crude-oil prices stay near $100 a barrel.

The Bank of Canada kept its policy rate unchanged at 2.25%, but Macklem acknowledged that fixed-income traders expect rate increases in the near future. He reiterated that rate policy cannot influence global energy prices or offset the impacts of the U.S.-Canada trade conflict.

Macklem said Canadian businesses have adapted to the changing trade environment, with a strong 14.5% climb in non-energy exports in second-quarter data. He added that businesses are building resilience by broadening their options and adjusting supply chains.