By Paul Vieira
OTTAWA--Bank of Canada officials are tracking labor-market conditions to determine whether job cuts in trade-exposed sectors like manufacturing start spreading in other parts of the economy, Gov. Tiff Macklem said Wednesday.
In the event that unfolds, it would signal trade uncertainty and higher tariffs are dampening demand, and may exert downward pressure on inflation, said Macklem, according to prepared remarks set for delivery at a board of trade luncheon in St. John's, Newfoundland.
"We are watching closely for signs that weakness in the job market is broadening," Macklem said. Senior Bank of Canada policymakers believe that "the weaker the economy and the more downward pressure on inflation, the more there would be a need to lower the policy interest rate further," he added.
The central bank's next scheduled rate decision is in six weeks, on July 30.
Macklem delivered a speech less than 24 hours after the Bank of Canada published minutes summarizing deliberations leading to its June 4 decision to keep the policy interest rate unchanged at 2.75%. The minutes indicated officials worried that recent firmness in core inflation may persist due to President Trump's trade policy.
Macklem reiterated in his remarks, as he did in the June 4 decision, that officials agreed another rate cut might be needed should the economy stall and inflation shows signs of slowing.
Economic output in the first quarter surprised on the upside, with gross domestic product increasing 2.2% annualized, as exports climbed and companies built up inventories before U.S. tariffs, and Canadian countertariffs, kicked in. But early signs point to a swift reversal in the second quarter, as Canadian exports to the U.S. declined 15% in April and the trade deficit ballooned to a record.
Macklem said two million Canadian jobs rely on trade with the U.S., and companies in the motor-vehicle assembly, auto parts, and other manufacturing fields have either cut payrolls or curtailed production in response to the U.S.-Canada trade conflict. The unemployment rate in Canada climbed to 7% in May, the highest level since 2016 excluding the pandemic.
"Tariffs have lowered our exports and weighed on employment," Macklem said. "That puts downward pressure on inflation in Canada."
Excluding trade-exposed sectors, hiring in Canada has increased. Macklem warned that could change quickly, should domestic demand remain weak and tariff-fueled uncertainty remain embedded. "Households and businesses will likely remain cautious," the governor said. "If demand stays soft, at some point more businesses will cut jobs."
Trump and Canadian Prime Minister Mark Carney discussed a new bilateral economic-and-security pact at this week's Group of Seven summit in Kananaskis, Alberta, and agreed to work toward a deal in the next four weeks, or 30 days. Macklem described the 30-day timeline as "very welcome news."
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
06-18-25 1142ET
