Bank of Canada Cuts Rates Amid Growing Trade War with U.S.
The Bank of Canada slashed its key interest rate by 0.25 percentage points to 2.75% on Wednesday, marking its seventh consecutive cut. Governor Tiff Macklem warned of “a new crisis” as the country braces for economic fallout from U.S. President Donald Trump’s tariffs on steel and aluminum. The central bank acknowledged the challenges ahead, stating, “Monetary policy cannot offset the impacts of a trade war.” Inflation, currently at 1.9%, is expected to climb as businesses face higher costs and consumers grapple with uncertainty.
The rate cut comes as Canada retaliates with C$29.8 billion in tariffs on U.S. goods. Trump’s trade policies have sparked concerns about job security and slowed business investment, according to a recent central bank survey. Some economists predict further rate cuts in April, depending on how inflation and economic growth respond to the escalating trade tensions. While Macklem emphasized the bank’s role in stabilizing the economy, he admitted that “higher prices do not lead to ongoing inflation.”
With Canada’s economy already under strain, Prime Minister-elect Mark Carney has pledged to “build the strongest economy in the G7.” However, with U.S. tariffs threatening key industries like lumber, dairy, and manufacturing, the path forward remains uncertain. The Bank of Canada may continue easing rates to counteract the damage, but experts warn that prolonged trade disputes could erase growth and push the economy closer to recession.
