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Calgary Herald
2 days ago
- Business
- Calgary Herald
Don't assume further rate cuts from the Bank of Canada, Poloz warns
Former Bank of Canada governor Stephen Poloz warned markets should not be assuming further rate cuts by the central bank, which will remain primarily focused on the inflation risk caused by tariffs over a weakening economy. Article content 'Inflation has been kind of firming lately, using the core measures the Bank of Canada pays attention to,' said Poloz, now special adviser to Osler, Hoskin & Harcourt LLP, during a webinar on Tuesday. 'And the counter tariffs that the government has put in place will start boosting inflation in the next couple of months.' Article content Article content On June 4, the Bank of Canada decided to hold its policy rate for the second straight time at 2.75 per cent, as it assesses how tariffs are affecting the Canadian economy. Article content Bank of Canada governor Tiff Macklem said it was too early to see the impact of retaliatory tariffs on the published CPI data but expects to see those effects in the coming months. The Government of Canada imposed 25 per cent tariffs on almost $60 billion worth of United States goods in response to U.S. tariffs, although certain exemptions apply. Carney has also signalled further potential retaliatory tariffs. Article content Poloz said the central bank had to learn a hard lesson during the post-pandemic era, when inflation unexpectedly jumped higher than expected. At the time, Macklem said inflation would be 'transitory.' Article content Article content 'The central bank said, 'Don't worry, that's a transitory thing.' Well, transitory turned out to be two years,' said Poloz. 'Having learned that lesson the hard way, I think central banks are going to be much more preoccupied with inflation risks.' Article content Article content The Canadian economy grew by 2.2 per cent in the first quarter of this year, mainly as the result of a rise of exports, as businesses pulled forward their inventory to get ahead of U.S. President Donald Trump's tariff announcements. Macklem said he expects growth in the second quarter to be considerably weaker, while many economists are forecasting a recession this year. Article content The unemployment rate also hit seven per cent in May, as tariff uncertainty continued to slow hiring demand and the manufacturing sector showed significant job losses in the last few months. Article content Article content Poloz said the deterioration in the labour market is a 'recessionary indicator' and he expects further layoffs as the result of tariffs in the coming months. This will be a point of concern for the Bank of Canada but Poloz noted that governments have shown a willingness to use fiscal policy to address the economic damage brought on by tariffs, while the central bank can remain focused on price stability.
Yahoo
2 days ago
- Business
- Yahoo
Don't assume further rate cuts from the Bank of Canada, Poloz warns
Former Bank of Canada governor Stephen Poloz warned markets should not be assuming further rate cuts by the central bank, which will remain primarily focused on the inflation risk caused by tariffs over a weakening economy. 'Inflation has been kind of firming lately, using the core measures the Bank of Canada pays attention to,' said Poloz, now special adviser to Osler, Hoskin & Harcourt LLP, during a webinar on Tuesday. 'And the counter tariffs that the government has put in place will start boosting inflation in the next couple of months.' Canada's inflation rate came in at 1.7 per cent in April, but measures of core inflation came in at three per cent and above. On June 4, the Bank of Canada decided to hold its policy rate for the second straight time at 2.75 per cent, as it assesses how tariffs are affecting the Canadian economy. Bank of Canada governor Tiff Macklem said it was too early to see the impact of retaliatory tariffs on the published CPI data but expects to see those effects in the coming months. The Government of Canada imposed 25 per cent tariffs on almost $60 billion worth of United States goods in response to U.S. tariffs, although certain exemptions apply. Carney has also signalled further potential retaliatory tariffs. Poloz said the central bank had to learn a hard lesson during the post-pandemic era, when inflation unexpectedly jumped higher than expected. At the time, Macklem said inflation would be 'transitory.' 'The central bank said, 'Don't worry, that's a transitory thing.' Well, transitory turned out to be two years,' said Poloz. 'Having learned that lesson the hard way, I think central banks are going to be much more preoccupied with inflation risks.' The Canadian economy grew by 2.2 per cent in the first quarter of this year, mainly as the result of a rise of exports, as businesses pulled forward their inventory to get ahead of U.S. President Donald Trump's tariff announcements. Macklem said he expects growth in the second quarter to be considerably weaker, while many economists are forecasting a recession this year. The unemployment rate also hit seven per cent in May, as tariff uncertainty continued to slow hiring demand and the manufacturing sector showed significant job losses in the last few months. Poloz said the deterioration in the labour market is a 'recessionary indicator' and he expects further layoffs as the result of tariffs in the coming months. This will be a point of concern for the Bank of Canada but Poloz noted that governments have shown a willingness to use fiscal policy to address the economic damage brought on by tariffs, while the central bank can remain focused on price stability. Poloz said whether Canada's central bank cuts or not will depend on what is causing the economy's slowdown. 'If it's just uncertainty that's causing companies to stop, pull back, then maybe cutting rates helps,' he said. But if tariffs are causing a more permanent structural issue in the Canadian economy, then monetary policy could prove ineffective. 'Cutting rates in that context just boosts demand with no supply to meet it, and can actually cause inflation to go up,' said Poloz. 'Markets should not be assuming these things,' he added. 'You saw the ECB (European Central Bank), they cut rates, but Europe has not retaliated on the tariffs, so they have less inflation risk for them, than we do over here.' In the meantime, uncertainty brought by Trump's trade war will continue, with a pullback on investment set to continue. Poloz said global income could drop by as much as $40 trillion due to Trump's tariff regime over the next few years. On the fiscal policy side, Poloz said the Liberal government is 'off to a promising start' with announcements on internal trade, increased defence spending, legislation on big projects and rhetoric on making Canada 'an energy superpower.' Poloz said he is seeing growing optimism in boardrooms, but added that the West remains understandably skeptical. Prime Minister Mark Carney said his government will present a budget in the fall and has promised to change the way its presented, by splitting operating and capital spending into two separate categories, which has faced criticism that it would complicate transparency on the deficit. David Rosenberg: Surprise job gains in Canada conceal economic rot underneath 'Grinding' rise in unemployment rate means Bank of Canada will start cutting rates again 'When someone presents a budget, they don't get to say we're going to do this and that's going to cause the economy to grow enough that actually it won't cause a deficit,' said Poloz. 'Convention is you say what you're going to do, then of course you cross your fingers and hope it works, it makes the economy bigger, and over time the revenues for the government grow and the deficit goes away.' 'But we all know that some of these things are so critical for economic growth, they're guaranteed to pay off,' he added. • Email: jgowling@ Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
26-03-2025
- Business
- Yahoo
'We're seriously outgunned' in trade war, warns former Bank of Canada governor
Former Bank of Canada governor Stephen Poloz says we are 'seriously outgunned' by the Americans in a trade war, arguing Canada will still need the United States down the road. 'When the dust settles, we will need our U.S. partnership, just as much as we need it today,' said Poloz, now special adviser to Osler, Hoskin & Harcourt LLP, during a webinar recorded on Monday. 'We need to keep our eye on that long-term. This is not the Hatfields and the McCoys. We have to think long-term and make the best of a bad hand at this stage, knowing that there will be another hand in due course sometime in the future.' U.S. President Donald Trump is set to announce reciprocal tariffs on all countries on April 2, and it isn't clear if goods covered by the Canada-U.S.-Mexico Agreement (CUSMA) will remain exempted from tariffs beyond that date. The Bank of Canada estimates a protracted trade war with the U.S. would cause Canada's GDP to decline by three per cent over the next two years. Desjardins Group economists predict Canada's economy will head into a contraction as soon as the second quarter of this year. Poloz said while the forecasts for the Canadian economy are 'grim' he does not believe them to be 'existential.' He said he is optimistic that Canada can find a practical solution. 'People forget that trade doesn't happen between countries, it happens between people,' he said. 'And those people still like each other, still respect each other, still want to do business together.' The trade war with the U.S. is set to dominate the federal election, which kicked off on Sunday, with Conservative Party leader Pierre Poilievre and Liberal Party leader Mark Carney both promising income tax cuts to Canada's lowest earners. Poloz said the trade war will require a fiscal response, though he does not think it will require one at the same scale seen during the pandemic. 'My hope is it will lean on promoting investment, more than we have in other slowdowns, as opposed to just household spending,' he said. Last week, the federal and provincial governments announced their plans to remove internal trade barriers, and have free trade within the country by July 1. Poloz said the gains will be significant for the Canadian economy. Trump says auto tariff coming, teases reciprocal duty breaks Why this is shaping up to be the trade war election How Trump's 'liberation day' could work in Canada's favour Moving forward, Poloz also had a number of suggestions to make Canada's economy more competitive. These include declaring energy and resource projects within the national interest, leaning into technological innovation, creating a better tax system for the manufacturing sector and using revenue from retaliatory tariffs to fund tax cuts. 'We're on the cusp of a major technological revolution. The world is going to change in so many different ways, more of the trade will be in services, not in goods,' said Poloz. 'There are just so many other things changing in a positive way. What we need to do is get ourselves in a position to take advantage of it all, and we can.' • Email: jgowling@ Sign in to access your portfolio
