MNI BRIEF: BOC Cautious As Trade War Brings Soft Jobs, Growth

Bank of Canada Governor Tiff Macklem told reporters Friday he remains cautious about cutting interest rates again with continued shifts in U.S. trade policy and the domestic economy poised for "soft" employment and output growth.

Referencing a week of IMF meetings focused on new threats of tariffs and export controls between China and the U.S., Macklem said “the latest developments highlight that uncertainty remains elevated" and that “we are going to proceed carefully.”

“We are continuing to watch those dimensions that we’ve highlighted for a while now” including trade and tariffs, business investment, employment and consumer spending, Macklem said in discussing how he will approach the next rate decision.

Canada's latest job report showing a surprising gain in employment of about 60,000 still leaves a net loss over the last three months of more than 40,000 jobs, he said during IMF meetings in Washington. (See: MNI INTERVIEW: Further BOC Cut Unclear In Trade War Fog-Mendes)

“The big picture you’re seeing in the labor market is the heavily-tariffed sectors are being severely affected,” he said. Elsewhere, there isn’t much activity in either hiring or layoffs, Macklem said.

While worst-case scenarios for the global economy have been avoided uncertainty remains high, he said. The Bank will still be able to return to a more normal forecast this month for the first time since January, he said. 

“The global economy has shown resilience, but we are starting to see the impact of U.S. tariffs and there are more impacts to come.” Stock markets also seem “stretched” and corporate debt spreads are narrow, he said.

Returning to the trade disruptions, Macklem also said: “If the threats that are on the table were to materialize that would be very significant.”