The discussion also touched on potential tariff threats and their implications for monetary policy. While tariff concerns exist, Jean explained that the Bank of Canada typically responds to enacted policies rather than speculative risks.
He pointed to diplomatic efforts aimed at mitigating the potential impact of such threats. If tariffs materialize, Jean expects a significant economic headwind, with disinflationary effects likely outweighing inflationary pressures. This scenario could prompt additional rate cuts.
Jean also addressed the Canadian dollar’s performance, noting a nearly six percent appreciation this year. A stronger dollar complicates the Bank of Canada’s calculus, as it could offset some tariff-related inflation impacts but add pressure to growth.
He suggested that a depreciating dollar, potentially reaching $1.43 to $1.45 against the US dollar, could act as a buffer for the economy if tariffs were introduced.
Jean observed that the Federal Reserve has slowed its pace of rate cuts, which could widen the monetary policy gap between the US and Canada. Such divergence could increase inflationary pressures in Canada due to currency effects.