Bank of Canada Governor Tiff Macklem announced in a Calgary speech on Thursday that the central bank will more formally integrate economic uncertainty into its monetary policy framework—at least temporarily—in a move that probably means a more cautious stance toward further interest rate cuts.
The move appears to be similar to the so-called risk management framework the central bank adopted under Tiff Macklem’s predecessor, Stephen Poloz, who also had to deal with elevated levels of uncertainty during Donald Trump’s first term as U.S. president. Essentially, the change involves moving the focus away from pinpoint forecasts and spending more time thinking about what could produce poor outcomes.
It adds a layer of cautiousness to policy at a time when the central bank continues to be worried about the inflationary impacts of tariffs. Adopting a risk management framework works both ways. Poloz was more worried about slow growth, not inflation, and wanted to avoid raising interest rates too quickly in the latter part of the 2010s.
Macklem is using that framework for different ends. He appears to be indicating that the Bank of Canada wants to ride out the current wave of uncertainty by making sure they don’t become too complacent about inflation.
This is a key quote from his presser following his speech in Calgary: “In that environment, we’ve said we’re going to be proceeding carefully with any further changes to our policy interest rate.”
The Bank of Canada has cut its policy interest rate by 2.25 percentage points since June.
The announcement also suggests a diminished likelihood of a rate move during the coming federal election campaign.
Theo Argitis is The Hub's Editor-at-Large for economics and business. Theo has been a journalist for the better part of three decades, spending much of his…
