Here’s what mortgage professionals need to know about Macklem’s Wednesday press conference – and the implications for the mortgage market
The Bank of Canada held its policy rate at 2.25% on Wednesday for the fifth consecutive time, but it was Governor Tiff Macklem's remarks at the post-decision press conference that drew the most attention. With two major geopolitical forces pulling monetary policy in opposite directions, here is what brokers need to know.
1. Trade war with the US could force rate cuts
"If the United States imposes significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth," Macklem said.
The governor's message was direct: a material escalation in US tariffs would weaken the Canadian economy enough to warrant further easing. For brokers with clients in variable-rate mortgages or those approaching renewal, this scenario — if it materialises — would translate into lower borrowing costs.
2. …But a persistent Middle East conflict could trigger rate hikes
"Alternatively, if the conflict in the Middle East continues and higher energy prices start leading to ongoing generalized inflation, monetary policy will have more work to do – there may be a need for consecutive increases in the policy rate," Macklem said.
This was the hawkish signal. Global oil prices, driven higher by the Middle East conflict, are already running above what the Bank had anticipated in its April forecast. If energy costs become embedded in broader consumer prices, Macklem is warning that the next move may not be a cut at all — and could involve back-to-back hikes.
3. Inflation is elevated but not yet out of control...
"So far, there has been limited evidence of broad-based pass-through of higher energy prices to other consumer prices," Macklem said, pointing to core inflation measures and the fact that the share of CPI components running above 3% is close to a historical average.
Core measures — which strip out volatile categories — are holding relatively steady. Canada's overall inflation rate rose to 2.8% in April, and while that is above target, Macklem's framing suggests the Bank does not yet see a generalised price spiral. That is the thin line currently keeping rate hikes off the table.
4. ...And the CPI is expected to hover near 3% before easing
"We expect CPI inflation to hover close to 3% in coming months before easing gradually toward 2%," Macklem added.
The governor's baseline is that this inflationary bump is temporary, with the Bank projecting a return toward its 2% target. Brokers advising clients on fixed-rate terms will want to weigh that timeline against their clients' renewal windows.
5. GDP is soft — but a Q2 rebound is expected
"Recent data suggests that GDP growth will resume in the second quarter, with continued increases in consumer spending and more stability in housing activity. Even with some rebound in GDP growth, we expect the economy to remain in excess supply," Macklem said.
Two consecutive quarters of negative GDP growth meet the technical definition of a recession. Macklem's view is that a Q2 rebound is likely, but the economy will remain below its potential for some time. Excess supply generally exerts downward pressure on inflation, which supports the case for holding or cutting rather than hiking.
6. Macklem pushed back on the May jobs numbers — and on the word "recession"
"When you look through the bumpiness, employment in Canada is little changed since the start of the year, and the unemployment rate has been fluctuating in the 6.5-7% range," Macklem said.
Canada added almost 88,000 jobs in May and the unemployment rate fell to 6.6% from 6.9% the month before — figures that would ordinarily suggest a strengthening labour market. Macklem's message was that the headline number is misleading once you account for month-to-month volatility.
On the recession question, he was equally measured: "The first quarter was just barely negative after the decline in the fourth quarter last year... So far, we have not seen a significant broad-based decline in economic activity." Asked directly, he stated plainly: "Recession is not the word I would use.".
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