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“We still do not know what tariffs will be imposed, whether they’ll be reduced or escalated, or how long all of this will last,” Macklem said in a press conference Wednesday morning alongside senior deputy governor Carolyn Rogers. 

He reiterated that “there’s nothing the bank can do to reduce uncertainty about U.S. trade policy” and that it will continue to stay laser-focused on controlling inflation, which has risen to 2.3 per cent in March from 1.8 per cent in January. 

The bank has already significantly reduced the interest rate from a five per cent peak since June, lowering it by 225 basis points — more than any other G7 central bank.

Macklem said policymakers remain cautious about rate moves going forward, providing little guidance on future decisions, except “we are prepared to act decisively if incoming information points clearly in one direction.”

“The message here is we’ve got to be flexible and adaptable,” he said in response to a question about whether “acting decisively” means delivering a larger than 25 basis-point cut.  

But TD economist James Orlando said he expects the bank will cut at its next meeting on June 4.

“Market pricing for a cut in June jumped today, with about 50 basis points in cuts expected over the remainder of 2025,” he wrote in a note to clients Wednesday morning. “This makes sense to us. Canada may have received a lower effective tariff rate than other countries, but the damage has already been done.” 

Scotiabank economist Derek Holt believes otherwise. 

“Because of at least nearer term upside risk to inflation and the likelihood that fiscal supports intensify, our current view is that the Bank of Canada is likely to remain on hold throughout the year,” he wrote in a note to clients, adding that he believes the next two decisions will be influenced by postelection domestic policies. 

While uncertainty around tariffs has been hurting business investment and consumer confidence, it also has put pressure on inflation.

According to the Bank of Canada’s surveys, Canadian firms are reporting that they’ve already seen an increase in costs and expect this to continue. 

In its April monetary policy report, also released Wednesday, the bank laid out two possible outcomes for the Canadian economy.

In one scenario, Trump’s tariffs are negotiated away but uncertainty still hurts the economy. In the other, there’s a full-blown trade war. 

Macklem said that if a long-lasting global trade war unfolds, “it will be painful.” 

“To be blunt, some exporters could go bankrupt,” he said. “That could spill through the economy. Unemployment could rise more, household spending could retrench more.” 

In this case, a “significant recession” would hit Canada and inflation would temporarily rise above three per cent in mid-2026 before returning to the two per cent target, the bank predicts. 

“There is also a scenario where this trade war ends relatively quickly,” he continued, “we’ll look back and say, well, that was really unpleasant, but it wasn’t a real crisis. So we’ll see.” 

In this scenario, the bank expects inflation would fall to around 1.5 per cent for one year, mostly reflecting the removal of the consumer carbon tax, before returning to the two per cent target. 

Senior deputy governor Rogers highlighted that there were different perspectives among members of the bank’s governing council, who are tasked with making the decision, but they’ve reached a “clear consensus” that holding rates was the right call. 

“Some of us are, I would say, more optimistic that the effects won’t be really, really big, and we won’t see a really big upward pressure on inflation.”