Tariff flareup puts central bank in difficult position
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With the recent and dramatic blowup of trade tensions between the United States and Canada, it’s easy to forget that an interest rate decision is just days away.
The Bank of Canada will announce its rate on Wednesday, Sept. 2, and while a hold is almost certain, the storm brewing between Ottawa and Washington could force an unexpected change in course down the road.
Most economists expected the central bank to hold its rate steady this year and the trade dispute has just increased that likelihood. It’s the gradual hikes in 2027 that have now come into question.
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“If the trade war persists and/or worsens, the bank’s job becomes much harder,” said National Bank of Canada strategists Taylor Schleich and Ethan Currie in a note Monday.
Though the 50-per-cent-tariffs on $28-billion worth of Canadian goods imposed Saturday are relatively narrow they could further weaken business confidence. If they remain in place, National estimates 100,000 to 130,000 Canadian jobs could be at risk.
Retaliation from Canada, followed by counter measures from the U.S., could increase the shock to the economy.
