Uncertainty Over U.S. Tariffs Affects Bank of Canada’s Projections

By Promit Mukherjee and David Ljunggren

OTTAWA (Reuters) – Uncertainty regarding U.S. tariffs means the Bank of Canada (BoC) may provide a range of economic estimates rather than a single forecast when it releases projections next month, according to Governor Tiff Macklem on Thursday.

The central bank is scheduled to issue its quarterly monetary policy report on April 16, outlining expectations for growth in the coming quarters and years. However, Macklem noted that fluctuations in U.S. trade policy complicate the ability of the BoC to establish clear assumptions for the Canadian economy.

> “If we were to prepare that monetary policy report today, I don’t think it would have a single central projection,” Macklem stated during a press conference, emphasizing that the BoC could opt to publish a range of possible outcomes.

The last adjustment in how the BoC presents forecasts occurred five years ago due to the COVID-19 pandemic. Macklem mentioned that the bank would revert to its standard forecasting methods once tariff uncertainty is resolved.

In the previous monetary policy report, the BoC projected a growth rate of 1.8% for 2025 and a 2% annualized growth in the first quarter of this year. However, Macklem expressed skepticism about how certain any governing council member could be regarding the most probable outcome.

Macklem explained that the lack of clarity regarding U.S. tariffs necessitated a shift in monetary policy practices, requiring the BoC to adopt a less forward-looking approach.

> “If we guessed where the economy was heading and got it wrong, our actions could be ineffective or worsen the situation,” he cautioned, stressing the need for policy that minimizes risk.

He highlighted the importance of maintaining flexibility and adaptability, indicating that the bank might need to act swiftly when circumstances become clearer, although he refrained from providing specific details.

Macklem reaffirmed the BoC’s dedication to low inflation, stressing the importance of preventing higher prices from tariffs from spreading through the economy. The unpredictability makes it challenging to determine how tariffs will affect demand and consumer prices.

The more inflationary the tariffs’ effects, the greater the emphasis on anchoring inflation expectations becomes, particularly as rising inflation could lead to increasingly volatile economic conditions. The BoC’s target is to keep inflation at 2%, the midpoint of its 1-3% range.

Macklem asserted that, despite successfully reducing inflation to its target, it is likely to rise again. He described the Canadian economy as initially achieving a soft landing, but underscored that a new economic crisis is emerging.