Address by Tiff Macklem, Governor of the Bank of Canada—Forces Reshaping Canada’s Economy in 2026

February 5, 2026

The Empire Club of Canada Presents

Address by Tiff Macklem, Governor of the Bank of Canada—Forces Reshaping Canada’s Economy in 2026

Chairman: Saurabh Popat, President, Board of Directors, Empire Club of Canada

Moderator
Rita Trichur, Senior Business Writer & Columnist, the Report on Business

Distinguished Guest Speakers
Tiff Macklem, Governor, Bank of Canada

Head Table Guests
Maude Leblond, Head & Managing Director of Financial Institutions, National Bank Capital Markets

Welcome Address by Saurabh Popat, President, Board of Directors, Empire Club of Canada
Welcome, everyone. I’m Saurabh Popat. I’m the chair of the board here at the Empire Club of Canada, and your host for today’s event.

To formally begin, I want to acknowledge that we are gathering on the Traditional and Treaty Lands of the Mississaugas of the Credit, and the homelands of the Anishinaabe, the Haudenosaunee, and the Wendat Peoples. I encourage you all to learn more about the Traditional Territory on which you work and live.

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The impact of U.S. tariffs and trade restrictions, slowing population growth and the softening labour market, volatile and weak GDP growth, inflationary food prices. These are all some of the recent headlines that we have all heard, and most Canadians are grappling with. Fortunately, however, we have independent economic leaders who are helping us to make sense of all the noise without compromise nor interference.

Today, we are so very pleased and proud to welcome our keynote speaker, Tiff Macklem, the 10th Governor of the Bank of Canada, for his first major address of 2026. Given how quickly this year is already unfolding, it feels especially timely to have the Governor here today. The economic landscape that we find ourselves navigating is dynamic, which also means that it’s demanding, which means that it requires a higher degree of focus, experience, and leadership, given the complexities of international finance. New shocks and the speed at which geopolitical forces and risks are reshaping our country.

Confidence matters in times like these, and so does steady, credible leadership. When global conditions become less predictable, the role of trusted institutions like the Bank of Canada become even more central. Canadians rely on the Bank of Canada to provide stability, clarity, and confidence, from managing inflation and interest rates to safeguarding the resilience of our financial system. That is why today’s conversation at this time this year is so very important. Governor Macklem will provide perspectives on the forces shaping Canada’s economic outlook, and what they mean for monetary policy in the year ahead. His remarks will be followed by a fireside conversation that allows us to dig deeper into those themes.

So, it’s now my pleasure to introduce our keynote speaker. Tiff Macklem has been the Governor of Bank of Canada since June 2020. It’s the capstone of an incredible four-decade career in public service, research, and leadership at the highest levels of Canada’s economic institutions. He first joined the Bank of Canada in 1984, where he held senior roles including Chief of Research, Advisor to the Governor, Deputy Governor, and Senior Deputy Governor. And during the global financial crisis, he was Associate Deputy Minister at the Department of Finance, and represented Canada at the G7, G20, and the FSB, or the Financial Stability Board. From 2014 until his appointment as Governor, he was Dean of the Rotman School of Management at the University of Toronto. And today, in addition to leading the Bank of Canada, he plays a central role in global financial cooperation, through his work with the Bank for International Settlements and the FSB. Please join me in welcoming the Governor of the Bank of Canada, Tiff Macklem.

Tiff Macklem, Governor, Bank of Canada
Well, thank you, Saurabh. It is wonderful to be back at the Empire Club. I haven’t been here since 2021, so thank you for the invitation. It’s as long overdue. A lot has happened since December of 2021, last time I was here. This is my first speech of the year. I’m thrilled to be here. And what a year it is shaping up to be. Last week, the Bank of Canada, we held our policy rate at 2.25%, and we had two key messages.

First, our economic outlook has not changed much since last fall, but uncertainty around that forecast has increased. We continue to expect the Canadian economy will grow modestly and inflation will stay close to our 2% target. But geopolitical risks are heightened, and U.S. trade policy remains unpredictable.

Our second message, the Canadian economy is adjusting to U.S. protectionism. Canadian businesses are looking for new suppliers and new markets. And this restructuring, which includes shifting our trade and integrating our internal market, it’s going to take some time. But in time, it will strengthen our economy. Today, I want to focus on this second theme, structural change, and what it means for the Canadian economy.

Canada is at a crossroads. The era of rules-based open trade with the United States is over. The potential of artificial intelligence looms large, and our demographics are shifting. The impact of these forces on the Canadian economy will not be a temporary cyclical fluctuation. These are deep structural changes that are transforming the economic landscape. And how Canada responds, which road we take, will define our economic future. [Remarks in French]

The Bank of Canada needs to understand the economic implications of structural change to deliver on our mandate, low stable inflation. Governments need to understand it to direct public investment, encourage private investment, and use industrial policy to capitalize on our economic strengths. Businesses, you, you need to understand it to develop new markets and products, invest in productivity-enhancing technology, help your workers gain skills for the future. And Canadians, Canadians need to understand it so they can see the opportunity, while managing what could be some difficult adjustments along the way.

Now, that is a lot to navigate in a short speech, so I’m going to break it down into three more manageable questions. First, what do we expect for the Canadian economy this year and next? What does structural change mean for jobs, for growth, for inflation? Second, where do we see adjustments already happening, and what could be in store in the years ahead? And finally, what are the implications for monetary policy? And the last question, certainly for us, is important, because monetary policy should not try to mitigate structural change. Our role is to preserve price stability, while supporting the economy through this upheaval. Well, that’s easy to say, but it’s hard to do in the moment.

Before I tackle these three big questions, I want to start by defining what we mean by structural change. Things, things are always changing in the economy. Oil prices, the stock market, exchange rates, they go up and down. Consumer and business sentiment shifts, and the strength of the global economy ebbs and flows. But these changes are not structural change. Structural change is bigger, it’s broader, and it’s not temporary. It permanently changes the level or composition of economic activity. It alters what and how much the Canadian economy can produce at full capacity without causing inflation. Structural change, it’s a journey. It’s the transition between one steady state and the next, between Canada’s old economy and the one that’s taking shape.

Now, in truth, the economy is always adjusting. It’s always adjusting to structural forces like new technology. And most of the time, structural change is gradual. It’s relatively smooth. It’s operating in the background. But sometimes structural change is more prominent, because the pace of change is unusually rapid. And this can happen because of a fundamental policy shift. We saw that in 1989, with the signing of the Canada-U.S. Free Trade Agreement. Or it could be because of the dawn of a new transformative technology like the internet in the 1990’s.

Today is one of those times of rapid change. We are facing the convergence of structural breaks. Advances in AI have dramatically broadened its application. The United States has swerved to protectionism, and our population growth has declined. Structural change, it can be disruptive, rendering some investments obsolete and displacing some workers. And spillovers from sectors that are restructuring can create cyclical weaknesses in other parts of the economy.

Structural change can also increase uncertainty, because it’s hard to know how transformative it will be. When the internet emerged in the 1990’s, we didn’t know just how valuable the new technology would be, or which investments would pay off. And even as the internet proved to be an enormously powerful new technology, the dot com bust of 2000 was a painful reminder that many new companies could fail. Like the internet, AI is a transformative technology, and its rise has sparked concerns about over-investment, over-valuation, as well as fears of job destruction. But just as the internet enabled new services and business models that boosted productivity, the rise of AI has the potential to put the economy on a higher path and raise our standard of living.

Now, while AI is building on past innovation, the US swerve to protectionism is reversing gains from trade. When Canada embarked on free trade with the United States in 1989, it did bring some pain in the short term. I don’t need to tell you, competition can be tough. But in time, a bigger market, new competition brought innovation and investment, increased productivity, higher growth, and lower inflation. Now, new trade restrictions are reducing efficiency, raising costs, and lowering incomes in Canada. Trend GDP growth is also being pulled down by lower population growth, which reflects both a decline in fertility and lower rates of immigration. That means fewer new consumers and fewer new workers in the economy. That lowers our economic potential. The bank’s population forecast suggests the Canadian labour force will hardly grow at all over the next few years. That follows annual growth of almost 1.5% on average for the past 20 years.

Now, looking back at history makes identifying structural breaks look deceptively easy. But identifying what’s happening in real time is challenging, because structural breaks happen at the same time as cyclical changes in demand and supply in the economy. And that makes it hard for businesses, for workers, for governments, and for central banks to know what change is permanent and what change is temporary. And so, you know, where do you invest? How do you set policy? I’m going to come back to the policy questions momentarily.

But first, let’s consider the first question. What does structural change mean for the economy over the next couple of years? Last week, the Bank of Canada released its quarterly monetary policy report, including our economic outlook for 2026 and 27. U.S. tariffs have weakened our economy. Exports, the red line, are down sharply. And while some export growth is expected to resume this year, exports grow along a lower path. The trade conflict has also spilled over to the broader economy. Business investment has been weak across sectors, largely because of elevated uncertainty. But investment is expected to strengthen as businesses adapt to the new trade environment, and governments increase infrastructure spending. Household spending is also expected to grow moderately, supported by past cuts in interest rates, and rising disposable incomes. Adding it all up, the economy is forecast to grow, but it’s soft growth. We expect GDP growth to average only about 1.25% over the next two years.

Now, part of this softness reflects cyclical weakness, and part reflects structural change. The lower U.S. demand for Canadian exports and trade-related uncertainty has spilled over into lower business investment and hiring. But tariffs have also increased costs and reduced the efficiency of our economy. And lower immigration means less growth in our labour force. In our baseline forecast, the spillover’s effects from trade and uncertainty gradually dissipate and the economy recovers from cyclical weakness. But the path for potential output is lower, because of increased trade friction and slower population growth.

Turning to jobs, we expect businesses to be cautious in their hiring this year. But with little growth in the labour force, we’re not expecting the unemployment rate to trend higher. Indeed, with modest economic growth, we should see some gradual improvement in the labour market over our projection. But structural change means that this improvement could be uneven across sectors and occupations—I’ll come back to this.

Inflation. Inflation is expected to remain close to the 2% target. Tariffs and the costs of reconfiguring trade are putting upward pressure on inflation. But cyclical weakness in demand is constraining price increases. With the Canada-United States-Mexico agreement under review this year, uncertainty will continue to weigh on our economy. And broader geopolitical risks are elevated. We could see a lot of worrying headlines. And I get it. Uncertainty. It makes it hard for businesses to invest. But some things are clear. The United States has rejected open trade. Our population growth has slowed. And AI will change the marketplace. And when the economic landscape changes, Canadian businesses, they need to adjust. Federal and provincial budgets include measures to help businesses pivot, support workers in transition, and help the economy restructure. These policy measures are included in our Economic Outlook, along with past interest rate cuts and other announced fiscal measures.

As the Canadian economy works through this transition, we expect growth will be modest. In time, the economy restructures, and productivity and potential output pick up. But this will be measured in years, not quarters. The transition could be faster, particularly if trade uncertainties ease, and businesses move more boldly to invest in new technology, markets, and products. But it could also be more painful than we’d like, particularly if the trade situation darkens or other shocks disrupt the economy. Worse still, the Canadian economy could fail to restructure. If that happens, productivity and GDP growth do not recover. Canada becomes a less attractive place to invest. Businesses become less competitive. Job and wage growth are weak. Our incomes don’t recover, and affordability worsens. That’s what we really can’t afford. That’s why we need to lean into structural change.

And that brings me to the second question. Where do we see adjustments already happening? And I’ll start with trade. As we approach the one-year mark of tariff threats, supply chains have started to shift. Goods imports from the United States, the blue line, have declined, while those from other countries have increased—that’s the red line. That decline in imports from the United States has mostly happened in sectors affected by Canadian retaliatory tariffs. Businesses are diversifying to avoid higher costs. There are also indications our imports from overseas are being rerouted to avoid going through the United States. Increasingly, we’re getting them directly. Exports, too, they’re shifting, but not as quickly. Exports of goods to non-U.S. markets have risen, while exports to the United States have fallen. A small but growing share of exporters have increased sales to overseas markets. So far, what we’re hearing is that the increase is largely limited to existing clients. Businesses have not found many new clients yet. And with so much of our exports going to the United States, the increase in other markets only provides a partial offset. You can see this in the large overall decline in exports—you’ll remember that from the first chart I showed you. You can also see it in the labour market. Employment in sectors with high exposure to trade, the red line, fell in the first half of the year, and remains subdued. You know, to bring it together, what are we seeing? It’s early days. It’s going to take time to develop new markets and then transition through the transition. That’s going to weigh on our export sector. It is encouraging that businesses have started adapting, but there’s a long way to go.

The changes brought by AI are not as easy to capture. Now, we are certainly seeing some AI investment, and we expect deficiencies brought by AI will ultimately boost productivity. AI will likely also affect the labour market, and we’re watching that closely. So far, it’s too early to see significant AI impacts on productivity or employment in Canada. But we are seeing a few early indications of change. AI adoption looks to be increasing in Canada, but it remains modest. When we talk to companies, what do we hear? They tell us that, yeah, their workers are increasingly using AI at work. But significant adoption of AI to produce or deliver goods and services remains low. Statistics Canada’s survey on business conditions puts this at 12%. And our own Business Leaders Pulse survey yielded broadly similar results. Our most recent survey, only 8% of businesses surveyed reported significant AI use in their operations. Another 11% reported plans to use AI over the next year. But the majority had either no or infrequent use of AI. And while AI may be expected to boost productivity at some point, it may be a while before we see a significant impact.

So far, we’re not seeing much impact in the labour market either. Now, not surprisingly, we are seeing increased demand for workers with AI skills. The flipside is, we may be seeing some early evidence that AI is reducing the number of entry-level jobs in some occupations. And this may be boosting youth unemployment, although separating the effects of AI from the impacts of trade and demographics changes is difficult. We’ve all seen more media reports that professional services companies are cutting back on entry-level positions because AI can do some of the work. There’s also some hard evidence that it is getting more difficult to find a job in occupations with a larger proportion of tasks that can be performed by AI. At the same time, we are seeing a decline in the share of entry-level job vacancies. That’s the blue line that you can see coming down in 2024 and 2025. And long-term youth unemployment is also elevated. We’re monitoring these things closely.

And as we monitor employment through structural change, though, it is important to remember the technological progress doesn’t just benefit companies at the expense of workers. Canadians. Canadians benefit too. Productivity growth pays for higher wages. And recent innovations have given us all more choice for less cost. The internet brought instant communication, e-commerce at our fingertips, GPS warnings of traffic ahead—very important in Toronto—crowdsource reviews, online bookings for everything. AI. AI holds similar promise for new goods and services at lower cost.

With structural change underway, and lots of runway ahead, we come to the third question. What are the implications for monetary policy? Now, recall our definition of structural change. It’s the transition from Canada’s old economy to the new one that is taking shape. Monetary policy. Monetary policy can’t change the destination, but it can help smooth the journey. Let me explain. The Bank of Canada is helping the economy through this restructuring while keeping inflation low and stable. Monetary policy can support demand that’s being restrained by spillovers and cyclical weakness. What monetary policy can’t do, though, is it can’t restore the lost efficiency caused by increased trade friction. Monetary policy isn’t going to have much effect either on the adoption of AI. And it certainly can’t influence fertility or immigration rates.

But what’s clear in principle is more complicated in practice. Several realities complicate monetary policy in the face of structural change. I’ll focus on two. First, it’s hard to differentiate structural change from cyclical fluctuations as they’re happening. In the short term, structural change is hard to see through the ups and downs in the economy. So it can be hard to know whether a drop in GDP or a drop in GDP growth is part of a structural trend, or is it temporary economic headwinds. And we have to be careful not to misdiagnose economic weakness. Monetary policy should not try to compensate for lost supply. Lowering interest rates in the face of weak economic activity risks stoking inflation if the weakness is due to lower productive capacity, rather than a cyclical downturn in demand. And there is also a risk that overstimulating demand when the problem is structural could delay needed structural change.

Second, by its nature, structural change will affect different sectors and different workers differently. And we can’t look, we can’t just look at the average or aggregate impacts. U.S. tariffs are already hitting the economy very unevenly. AI is poised to disrupt some industries and occupations more than others. Experience has taught us that these sectoral differences are important to understand inflation. For example, strong demand in some sectors may boost inflation more than weakness elsewhere lowers it. Navigating the transition will require a lot of careful analysis and thoughtful judgment. We need to look beyond the aggregate and dig into more granular data to see how workers and capital are moving across sectors and regions. The dynamics of the labour market can offer some important clues about what’s cyclical and what’s structural. While cyclical downturns always affect some jobs more than others, experience tells us that cyclical downturns result in a broad-based weakness in the labour market. So, if the unemployment rate, job vacancies, separations, job finding rates, if they’re unusually different across sectors, occupations, and demographic groups, it suggests structural change is at play. Our surveys. Our survey of businesses and consumers will also help us in identifying how capital is shifting, how jobs are changing, how workers are adjusting. And given Canada’s main industrial sectors are concentrated in different parts of the country, our regional analysis and outreach will be important.

Finally, we need multi-sector models to understand the monetary policy implications of structural change. And since the pandemic, we’ve developed richer models that capture sectoral differences and links between sectors. More granular analysis, continued regional outreach, and richer models, they’re all going to help us separate what’s structural from what’s cyclical. Even so, the confluence of geopolitical, demographic, and technical change increases the risks of getting it wrong. That’s why we’re using more scenario analysis. Scenario analysis allows us to explore alternative interpretations, and that helps us reduce the risk of policy errors. And we will be ready to respond if new information changes our outlook. In short, we’re going to be working hard to identify and assess the relative importance of cyclical and structural changes. And through it all, our 2% inflation target is our ultimate policy beacon.

Okay. It’s time for me to wrap up. I began by acknowledging the heightened uncertainty we continue to face. This is making it difficult for businesses, for families, for communities to plan and prepare for the future. But we need to play the hand we’ve been dealt, not the one we had. [Remarks in French]

Even with increased uncertainty, the structural forces of U.S. protectionism, new AI-driven technology, and shifting demographics are unmistakable. How Canadian households, how businesses, how governments respond to these structural breaks will determine our future prosperity. We can be victims of U.S. trade and AI disruption, or we can lean into structural change, expand our internal market, diversify our trade, embrace new technology, and raise our productivity. Monetary policy will not be at the centre of the action, but the Bank of Canada will be playing a supporting role. Our focus is on maintaining low and stable inflation, while helping the economy through this period of structural change. And it’s on managing through this period of elevated uncertainty. That means being alive to the risks, and prepared to adjust if the outlook changes. Thank you very much.

Saurabh Popat
Thank you so much, Governor, for those insightful remarks, and lots to think about today. And thank you for grounding us so clearly on the forces shaping Canada’s economic outlook at a moment when clarity is as welcome as it is hard to come by. And now, we’ll continue the conversation in a more interactive format. We’re very fortunate to have today’s discussion moderated by Rita Trichur, senior business writer and columnist for the Globe and Mail’s Report on Business. Rita is an award-winning journalist whose work has helped Canadians better understand the country’s financial system, its institutions, and the people who lead them. Over the course of her career, the Globe and Mail has served – she has served as senior editor, financial services editor, and national business columnist, bringing both rigour and perspective to complex economic issues. She also brings in international experience from her time reporting with the Wall Street Journal’s Canada Bureau, where she covered Canada’s banks and insurers while situating them within a broader global context. Rita’s gift is asking thoughtful questions, drawing out insight, and connecting policy to real-world impact, all of which makes her an ideal guide for the conversation ahead today.

Please join me in welcoming Rita to the stage for a fireside chat with the audience, and the Q&A with Governor Macklem. Let’s lean in.

Rita Trichur, Senior Business Writer & Columnist, the Report on Business
Thank you for that really kind introduction. Are you ready to bring some fire to this fireside chat?

Tiff Macklem
Let’s do it.

Rita Trichur
Okay. I want to talk to you a bit about your speech first. You talked about where you are currently seeing some evidence of this structural change playing out in the economy, but I’m curious where it has yet to take hold. Where should we be watching?

Tiff Macklem
Yes. I touched on some of the places we are seeing it. We’re seeing our imports from the United States are down. There’s a number of reasons for that, but an important reason is Canadian businesses, they want to diversify their suppliers. Our exports to the United States are down. Our exports to others are up. When we talk to businesses, what are they telling us? What they’re telling us is that yes, they have increased their shipments to non-U.S., to overseas markets, but mostly so far that’s been to existing clients. I mean, it’s too early to develop new clients. But the other thing we’re hearing from businesses, yes, they’re going to Europe more, they’re going to Asia more, they are looking to develop those new clients. And you’ve seen the Prime Minister. He is increasingly engaging with the world, trying to get new trade partnerships with other countries. So, you know, what we’re looking for, to get to your question, okay, what have we not seen yet? We haven’t really seen yet new markets open up, new clients. That’s certainly something we’re looking for.

Some of the other things I think we’re seeing, in the labour market, lower population growth means we’ve got, you know, we’ve had pretty weak hiring by businesses. But at the same time, with lower population growth, lower labour force growth, there’s not that many new people coming into the labour market. So, even though hiring has been weak, the unemployment rate, it’s elevated, but it hasn’t really been going up. So, you know, the labour market, going forward, we don’t really think that the trend unemployment rate is going to go up a lot more. You know, when you look at businesses, you know, you look at their sales forecast. So, you know, businesses traditionally, well, you could count on, okay, there’s going to be more people in the economy, so I’m just going to get some more consumers. But I think now, you’re seeing businesses’ forecasts of their sales outlook, they’re down. Now, part of that is probably cyclical, but part of that may be, you know, businesses are starting to adjust to the reality that if they want to grow their business, they’re going to have to get a bigger share of people’s wallets, or they’re going to have to export more to other countries.

You know, I think probably the hardest one to really wrap around is AI, and I talked a bit about that. You know, we’re starting to see some early indicators, you’re starting to see some impacts in the labour market. But I think, when you step back, we’ve got this confluence of three structural breaks. We’ve got cyclical weakness. It’s hard to separate these things out. I think what’s important to remember is that structural change, you know, it’s hard to see in the moment, but over time accumulates, and it can have a very big effect over time. We’re starting to see that adjustment. That’s encouraging. You know, the bolder we are, the more we get on with this, the faster we’re going to come out the other side.

Rita Trichur
Okay, so you talked about in your speech how ordinary Canadians also need to understand what is transpiring in the economy, because their own jobs are at stake. So, with that in mind, how do central bankers distinguish between structural change and cyclical change? How do you tell the difference, if it’s hard to do that in real time?

Tiff Macklem
Well, I mean, I’ll start by the most important thing. So, what ultimately guides us is keeping inflation close to our target. So, we’re not going to get every bit of this exactly right in real time. But if we’re a bit off, so, I mean, let’s say, I mean, in our baseline outlook we have not built in a big productivity boom from AI. Because, I mean, yes, we think it’s coming, we think this is a transformative technology. But, you know, so far, we’re not seeing a lot of it in the data. We don’t know when it’s going to come. But, yeah, that’s a risk. You know, that’s a risk to our outlook. It’d be a good thing. AI comes faster. Our productivity growth goes up more. That means the Canadian economy could grow more without adding inflationary pressure.

So, if we’re, if we are underestimating that, we see the economy grow more, we may think the economy is starting to reach its capacity constraints. So, we might be thinking about, well, we might have to start raising interest rates. But if we see, oh, inflation, it’s not, you know, it’s staying low, that’s going to be a signal that, well, maybe the economy does have a bit more space. You know, we’re going to be digging in, to try to see if we can find evidence of those productivity shifts. But ultimately, you know, we’re going to use inflation as somewhat of a guide. So, even if we don’t get it exactly right, we shouldn’t, you know, we shouldn’t get too far off.

Rita Trichur
Okay. You mentioned that last week the Bank of Canada released its new monetary policy report, which I was reading on the weekend. And…

Tiff Macklem
Lucky you.

Rita Trichur
…and showing it to my daughter, who was asking me all sorts of questions about what it’s about. So, I have to ask you, given that there are so many headwinds driving uncertainty right now in terms of the bank’s forecast, what is the risk that the bank will get monetary policy wrong, given the level of uncertainty? And where will those potential misjudgments occur, or where might they occur?

Tiff Macklem
Well, I mean, nobody has a crystal ball. You know, we’re all, everybody in this room, we need to forecast the economy, you need to forecast your sales. It’s a bit like running a business in the sense that, yes, you need a plan, you need a baseline forecast, but you also think about the risks. And when you’re taking decisions, when we’re taking monetary policy decisions, we’re thinking both about the baseline forecast and the risks around it. And, I mean, clearly one of the big risks, the Canada-U.S.-Mexico CUSMA agreement is under review this year, and there’s a wide range of possible outcomes. In our baseline forecast, we assume that the, what’s currently in place stays in place. We also assume that the uncertainty around trade gradually diminishes. That could be wrong. There, you know, it could be a little bit wrong, in which case it probably won’t have a huge effect, but there could be a bigger rupture.

How do we think about that? So we’ve done a range of scenarios of different trade outcomes. We’ve actually published those. We published those in previous monetary policy reports. You have to go back and read the other ones now. And I’ve given a number of speeches where I’ve outlined those. So we find those very helpful. Those give us a sense of, if this happens, this is what it would look like in the economy. We find those very helpful for our decision-making. And, you know, in the spirit of transparency, we think Canadians should see those too, so we’ve published those. So, you know, there’s no surefire way. But, I mean, you need to think about your baseline, your plan. You need to think about what else could happen. And, you know, if something does happen and the outlook shifts, we’re prepared to adjust. And, you know, we’ve already got a sense of what it could look like.

Rita Trichur
Okay. So, let’s talk about the base case projection regarding the USMCA review. This is actually a question from my daughter. What underpins the view of the base case? And the reason she was wondering is, you know, President Trump engages in such erratic policymaking around trade. So, is the base case scenario overly optimistic?

Tiff Macklem
You’ve got a very precocious daughter. Well, I guess we’ll see. I guess what I would say is, I mean, whenever you do a forecast, you’ve got to base it on, you’ve got to make some assumptions. And our typical assumption is we take government policies, whether they’re Canadian government policies or foreign government policies, as given. You know, we can’t chase every threat by President Trump. We’ll be chasing our tails. We’ve done a range of scenarios to look at, you know, what different, as I said, different tariff scenarios, different trade scenarios could look like. But, yes, we don’t run a new simulation every time there’s a new threat. The, you know, from the beginning, I think we’ve all been worried that it could be a lot worse. It hasn’t been as bad as we feared. Still, you know, as hard hit as a number of sectors have been, 88% of the goods we export to the United States still go to the United States tariff-free. That could change. On the other hand, we could get some relief in the hard-hit sectors. I mean, we’ll see. If it turns out to be too optimistic, we may need to adjust.

Rita Trichur
Okay. I want to ask you about some central banking news that came out of the United States last week. President Trump, in case anybody missed it because they were asleep, nominated Kevin Warsh to become the next Federal Reserve Chair. You know Mr. Warsh. What do you think of his nomination? And please tell us what it was like working with him.

Tiff Macklem
Well, first of all, congratulations to Kevin. Look, I welcome Kevin’s nomination. I do know Kevin. Kevin was a Fed governor through the global financial crisis. He was certainly an important member of the FOMC. We worked closely with Ben Bernanke. Kevin is a very experienced central banker. He has deep knowledge of financial markets and the international monetary system. I am looking forward to working with Kevin as Chair. I don’t know. What else can I tell you?

Rita Trichur
Is he a steady-handed in times of crisis?

Tiff Macklem
Well, he certainly has a lot of crisis experience. And you know, his nomination needs to be confirmed—that’s not up to me. But yeah, I’m looking forward to working with Kevin again.

Rita Trichur
Okay. Last month you were among a group of global central bankers who expressed support for the current Fed Chair, Jerome Powell, who, as we all know, has come under a repeated attack, and now is facing a criminal investigation over a renovation project. You recently spoke about the importance of central bank independence. So, I’m just hoping that you can give us a bit more detail, and elucidate on your comments. How specifically could the loss of the Federal Reserve’s independence affect Canada?

Tiff Macklem
Yes. I did speak in support of Chairman Powell, precisely because independence of the Federal Reserve, it’s important to us all. It’s important to Americans, but the Federal Reserve, it’s the most important central bank in the world. And we all need the Fed to work well. Our financial markets in Canada are very integrated with U.S. financial markets. So, you know, your question is, okay, so what does this mean for Canada? Well, I mean, if there’s a loss of Fed independence, you know, I don’t know exactly what that, you know, there’s a lot of possible things, outcomes that could be. But what it means is that, you know, you’re going to get a Fed that’s less predictable. And what does that mean? Well, you know, that means the impact, that’s likely to have some impact on U.S. interest rates.

So, I mean, you know, to put a point on it, you know, you’d expect to see some impact, say, on the five-year U.S. Treasury interest rate. Well, what happens to the five-year U.S. Treasury interest rate tends to spill in—our financial markets are very integrated—it tends to spill in to affect the Government of Canada five-year interest rate. And the Government of Canada five-year interest rate is kind of the benchmark off which private sector interest rates, the interest rates that your businesses are borrowing at, the five-year mortgage rates that Canadians are paying. Now, it’s not going to be one for one, Canadian rates don’t move one for one. But if U.S. rates move, typically some of that gets, you see some similar movement in Canadian rates. So, if U.S. Fed policy becomes less predictable, you know, that’s going to impact us all.

And I just want to sort of stress, so why is independence important? Look, it’s not independence for independence sake. You know, why do you have a central bank? Why doesn’t the government just do this? Well, the whole reason you have a central bank is to create some arm’s length from the government, so that the central bank has the space to take difficult decisions that, you know, are in the best interest of the economy in the medium term.

You know, the research, the history is very clear. Central banks with operational independence for monetary policy, they do a better job of delivering price stability for their citizens. And I spoke out because, you know, I believe Chairman Powell has been a good job guiding the FOMC based on evidence, based on economic judgements, not on politics, and it’s important that that continue.

Rita Trichur
Okay. The Bank of Canada has also been the target of some partisan criticism here at home in recent years over its handling of inflation. And the C.D. Howe Institute has made a couple of suggestions that could bolster Bank of Canada’s independence, including new guardrails to prevent the government from abusing its power, to provide written direction to the bank, and also the creation of a permanent mechanism to manage losses. I’m not expecting you to comment on the C.D. Howe’s suggestions, but how do you expect or do you expect the issue of central bank independence to be addressed as part of this year’s mandate review for the Bank of Canada? And if so, how?

Tiff Macklem
Sure. I’ll say a couple of things. Well, first of all, the independence of the Bank of Canada is well established in our framework. It’s been well established at least since 1961, and basically the way it works is that the objective of monetary policy, currently the 2% inflation target, that is agreed between the Bank of Canada and the government. And so, the objective is agreed with the government. In my view, that’s important. It gives it political legitimacy. Ultimately, the objective of monetary policy should be agreed with the democratically-elected government. But then, the Bank of Canada has the operational independence to use its instruments—the main one being, obviously, our policy interest rate—to achieve that objective, and that’s what we do. That is well established.

One feature of our framework is that every five years we review it, and this is one of those years. We renewed the agreement in 2021; five years later, 2026. So, by the end of this year, we will need to renew our monetary policy framework agreement with the Government of Canada. And you know, against that background, I think the fact that we review this every five years is a strength to our system. It makes sure we kind of ask ourselves, is our system still fit for purpose? The world is always changing. And yes, I’m not going to comment on the specific suggestions by the C.D. Howe, but I’m glad to see people thinking about this. I’m glad to see people are commenting on this. I’m glad to see people are putting ideas out there. So, yeah.

Rita Trichur
Excellent.

Tiff Macklem
Bring it on.

QUESTIONS & ANSWERS

Rita Trichur
This is great. Okay, I have a question here from the audience. Can you comment on the impact of the Canadian economy of a serious reduction in interprovincial trade barriers, and what do you think is the likelihood of real progress?

Tiff Macklem
Okay. Important question. There have been a number of studies put out. In fact, the IMF just published one in the last week. And there’s different estimates, but what they all show is that if we were to reduce interprovincial trade restrictions and many small regulatory differences between provinces, it’s as if we have tariffs within the country. You know, we’re complaining about U.S. tariffs. Well, we have restrictions within the country. If we got rid of all of those, it would be a very significant increase in growing our internal market, improving the efficiency of business across this country. And what’s included in that? Well, there are various specific trade restrictions, but there are procurement restrictions. There’s restrictions on movement of labour—I mean, almost every professional body, lawyers, engineers, nurses, doctors, electricians, they’re all accredited province by province. Imagine if we just got rid of all those, and had one unified labour market.

So, let me give you the sort of glass half full but the glass half empty where we’re going. So, the good news is, there is much more recognition of this now. And the provinces, the Canadian government, the federal government has eliminated them all. Most of the restrictions, though, are provincial. The provincial premiers have been working to reduce these, and there has been important progress. I do think, though, that they’re getting to some of the harder ones. And I would, you know, there’s going to need to be some continued political will and energy to move forward. You know, the kind of estimates you see coming out of the IMF are much bolder, assume much bolder reductions than what’s being talked about now. So, I’m very pleased to see we are finally making progress on this. There is some momentum. We need a lot more ambition.

Rita Trichur
Thank you. We are unfortunately out of time. I could have spent so much more time speaking to you, and there are obviously more audience questions that I didn’t get to. But thank you for your frank commentary and for giving us a reason to remain optimistic.

Tiff Macklem
Thank you, Rita.

Rita Trichur
Thank you.

Saurabh Popat
Thank you, Governor Macklem and Rita, for that thoughtful, engaging and insightful conversation. I think we can all agree that that was timely and provided calibrated insights into the economic forces shaping Canada and the decisions that matter most for confidence and stability. We’re truly grateful to the both of you for your perspectives today.

Before we conclude, I am pleased to invite our Lead Sponsor to share a few closing remarks. National Bank approaches moments of change with a clear sense of responsibility and purpose. Its people-first focus on long-term thinking, strong relationships and positive impact reflects the same questions at the heart of today’s discussion. How do we build resilience, make sound decisions in uncertainty, and contribute to a more stable and competitive Canada? That commitment to acting thoughtfully while staying agile in a shifting environment makes National Bank a natural partner for this conversation. We’re very grateful for National Bank’s support and leadership in helping bring thoughtful, timely discussions like this to the Empire Club stage. Please join me in welcoming Maude Leblond, Head and Managing Director of Financial Institutions from National Bank Capital Markets. Maude?

Note of Appreciation by Maude Leblond, Head & Managing Director of Financial Institutions, National Bank Capital Markets
Well, that was quite the introduction. I only have a few words to say, but National Bank is a very proud supporter of the Empire Club, a forum for thoughtful conversation like we had today on subjects of high importance to all Canadians. Governor Macklem, thank you for your insightful conversation today on how the Bank of Canada is supporting the economy adjusting through these major structural changes.

On a separate note, I think that I would say that the audience here would agree with me when I say that we all have a renewed appreciation for the importance of your institution independence in order to set clear and credible monetary policy, which is really at the cornerstone of our stable financial markets, and how quickly this independence can be eroded. So, we thank you for your vocal leadership in these volatile times. Thank you. Have a good afternoon.

Concluding Remarks by Saurabh Popat
Thank you. Merci, Maude. Thank you again to our panellists, our sponsors, and of course to all of you joining us here today and online. I’d also like to take a moment to recognize the students and young leaders joining us today. Their presence is made possible through the charitable arm of the Empire Club Foundation and the generosity of our donors. This support enables us to invite future leaders to take part in today’s dialogue and to empower them to turn knowledge into leadership that shines in communities, boardrooms, and national conversations shaping Canada’s future.

To stay connected, please subscribe to our newsletter by scanning the QR code on your tables. And if you’re interested in our membership program, please see our staff at the registration desk.

I also hope that you’ll join us for two exciting upcoming events. On February 17th, we will host a timely conversation on one of the most pressing issues facing Ontario today, housing affordability. As soaring prices, low housing starts, and rising construction costs put home ownership further out of the reach for so many of us, we will hear directly from Minister Robert Flack, Ontario’s Minister of Municipal Affairs and Housing, on what comes next in the province’s plan to get shovels in the ground faster and protect the dream of home ownership. That discussion will be moderated by Steve Paikin, with an introduction by Ontario’s previous Premier, David Peterson.

Then on February 19th, we will turn to Ontario’s broader economic outlook. In partnership with the Ontario Chamber of Commerce, we will launch the 10th Ontario Economic Report and examine competitiveness, confidence, and growth in a shifting global landscape. The program will feature insights from Federal Minister Mélanie Jolie, and with business and policy leaders to unpack what Ontario needs to stay competitive and attract investment in the year ahead. Tickets for both events are on sale now.

And as always, as a club of record, all Empire Club events are available to watch and listen to on our website. The recording of today’s event will be available shortly. Thank you all for being a part of this important conversation. Enjoy the networking reception. This meeting is now adjourned. Thank you.