Bank of Canada cut its policy rate by 25 basis points to 2.25%, its second straight reduction, as Governor Tiff Macklem warned that US tariffs have structurally damaged the Canadian economy and left growth weak with a soft labour market.
Macklem said trade actions from the US have reduced Canada’s productive capacity and raised costs, a shift he framed as deeper than a normal downturn, while highlighting the bank’s priority to maintain confidence in price stability “through this period of global upheaval.”
“The weakness we’re seeing in the Canadian economy is more than a cyclical downturn. It’s also a structural adjustment.” he said. “The US trade conflict has diminished Canada’s economic prospects. The structural damage caused by tariffs is reducing the productive capacity of the economy and it’s adding costs.”
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The governor quantified the easing path to date and tied it to the outlook, highlighting lowering the policy rate by 50 basis points over the last two meetings and by 100 basis points since the start of the year. He added that the Bank expects “very modest growth through the rest of the year, with some pickup in 2026.”
However, Macklem said the tariff regime has been in place for more than six months and its impact is now visible in data and across industries.
“US trade actions are having severe effects on targeted sectors, including autos, steel, aluminum, and lumber,” he explained.
He underscored that “the labor market is soft”, adding that job losses “have been concentrated in trade-sensitive sectors and hiring has been weak across the economy.”
This stands in sharp contrast to the public economic messaging from the federal government, which has emphasized job creation and a strong recovery. While employment data barely rose last month by 60,000 jobs (+0.3 %), the unemployment rate remained at 7.1% and full-time employment gains only partially offset previous two-month losses.
“If the economy evolves roughly in line with the outlook in this monetary policy report, governing council sees the current policy rate at about the right level to keep inflation close to 2%, while helping the economy adjust through this period of structural change. If the outlook changes, we are prepared to respond,” Macklem said.
He was also explicit on the limits of monetary policy under current trade frictions.
“Monetary policy can help the economy adjust, as long as inflation is well controlled, but it cannot restore the economy to its pre-tariff path,” he emphasized.
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