(Bloomberg) -- Bank of Canada Governor Tiff Macklem said Donald Trump’s trade threats are making the world a more uncertain place, and urged advanced countries to work together to bolster economic security.
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In a year-end speech in Vancouver, Macklem said elevated sovereign debt, higher long-term interest rates and slower growth are “making the world more vulnerable,” and that geopolitical tensions, war and rising protectionism are adding to risks.
“The democracies of the G-7 will be stronger if we confront our shared economic security issues together,” he said in prepared remarks. Canada will host the Group of Seven summit in 2025, which Macklem called “an opportunity to lead.”
Last week, the central bank cut rates by 50 basis points for a second consecutive meeting, bringing the benchmark overnight rate to 3.25%. In Monday’s speech, Macklem repeated that officials “anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected.”
Inflation is expected to average close to the 2% target over the next couple of years, Macklem said, and he reiterated that monetary policy “no longer needs to be clearly in restrictive territory.” Still, he noted there are domestic risks around the outlook for inflation, and he repeated that policymakers are “equally concerned with inflation coming in higher or lower than expected.”
Elevated wage increases combined with weak productivity could boost price pressures, or below-potential economic growth could drag inflation lower.
Macklem said there’s an increasing focus on “negative international spillovers,” where the actions of one country hurt other nations. But there are also positive collaborations, including when major central banks worked to rein in global inflation pressures after the pandemic, which helped reduce demand for global goods and took pressure off snarled supply chains.
Of Trump’s threat to place 25% tariffs on goods the US imports from Canada, Macklem said “no one knows how this will play out in the months ahead” and the future “looks more uncertain than it did before the pandemic.”
“Trade protectionism and economic fragmentation are rising, and the appetite for global cooperation is waning. Shifting international relationships are adding uncertainty and costs and altering investment plans,” Macklem said.
In the wide-ranging speech, Macklem also said the bank has nearly finished a review of the tools it used during the pandemic, including quantitative easing and what it calls “exceptional forward guidance” — Macklem’s 2020 message that rates would stay low for longer than markets expected. He said Monday the bar should “remain high” to use these tools in the future.