Inflation risks loom in 2026, and central banks have not yet agreed on how to respond. Global Finance unveils the 2025 report cards of central bankers in North America.
CANADA | Tif Macklem: B+
The Bank of Canada’s (BoC) monetary policy direction, once predictable, has become less certain over the past 12 months. Governor Tiff Macklem led an aggressive interest rate reduction cycle, lowering the overnight rate seven consecutive times from April 2024 to March 2025, bringing it down to 2.75%. This pattern was interrupted in April and June, however, citing in its policy announcements that the country had reached a “neutral” interest rate level. By September, policy changed and the Bank of Canada cut interest rates by 25 basis points, to 2.5%.
While the bank continues to emphasize keeping core inflation above its 2% target, many analysts say the economic outlook has worsened significantly. The Canadian economy, heavily dependent on trade with the United States, is already feeling the pressure of tariffs imposed by the Trump administration, whether implemented or threatened. Jobs data has started to show signs of deterioration and GDP growth for 2025 is expected to fall below 2%.
“Macklem has given us a lot of mixed messages,” says Stephen Brown, deputy chief economist for North America at Capital Economics. “They have pointed out that core inflation has remained above target in recent months, but at the same time they do not seem willing to believe that the tariffs are a one-time price change and that the weak economy will bring down inflation. They seem afraid of repeating the inflationary surge seen during the pandemic. But the situation is different now; the Canadian economy is weak, whereas during the pandemic there was a vast global recovery and massive stimulus measures in the United States which caused high inflation. autonomous. »
Canada’s unemployment rate reached 7% in May, its third consecutive monthly increase and the highest level since September 2016, excluding pandemic years.
“My criticism would be that they have become a little too reactive to incoming data, instead of being confident in their judgment on broader economic trends,” Brown adds.
The escalation of trade tensions further complicates matters. The United States imposed a 25% tariff on cars assembled in Canada as well as a 10% tariff on Canada’s energy resources and essential minerals. In response, Ottawa introduced its own 25% tariffs on a range of American products, including steel, aluminum and various consumer goods. Ongoing negotiations continue to create uncertainty around trade policy and economic forecasts.
UNITED STATES | Jerome Hayden Powell: A+
At a European Central Bank forum in Sintra, Portugal, in early July, Federal Reserve Chairman Jerome Powell received a round of applause from his peers after responding to personal attacks from President Donald Trump by saying he was focused on his job.
Since Trump’s re-election last November, Powell has faced repeated public criticism over monetary policy that the president considers too restrictive. Trump, who initially nominated Powell, even threatened to impeach him before his term ends in May 2026.
“I’m very focused on my work,” Powell said in July. “What matters is using our tools to achieve the goals that Congress has assigned to us: maximum employment, price stability, financial stability.
This is what we are 100% focused on. Over the past year, the Fed has gone from raising interest rates to holding them steady and, more recently, cutting them. In September last year, it made a sharp pivot with a 50 basis point cut, signaling a new direction. After holding the overnight federal funds rate between 4.25 and 4.5 percent for several months, it lowered the benchmark rate to between 4 and 4.25 percent in September, and further reductions are expected this year.
“They’re getting a lot of pushback from the Trump administration, which claims the Fed is fighting the last war,” says Stephen Brown, deputy chief North America economist at Capital Economics. “But that’s not fair. Inflation hasn’t returned to 2% and the economy is still strong. Interest rates are clearly not too restrictive. I think Powell is playing his role well as he faces what could be a tricky 10 months before the end of his term.”
The Fed is currently in “wait and see” mode, Brown says, closely monitoring economic data and the effects of Trump’s new tariffs before taking further action: a position that has angered the president.
Investors are eyeing another potential rate cut, perhaps by the end of 2025. “There is a risk that they will fall behind,” Brown warns, “but there is a lot of uncertainty when it comes to trade policy. These tariffs are unprecedented in modern times, and even if we knew exactly what they would be, we wouldn’t know what impact they would have on the economy. The Fed appears willing to take the risk of being slightly in delay on cuts if this helps avoid being far behind if inflation rises again.”
The hawkish tone adopted by the Powell Fed in response to tariff uncertainty is appropriate given that it has largely ensured a soft landing for the economy, says Conor Beakey, head of Latin America country risks at BMI. The data generally continued to support the central bank’s cautious approach, he adds.
“The Fed’s willingness to stick to its positions should be commended,” says Beakey, “with Powell having no choice but to move from a ‘data-dependent’ to a ‘forecast-dependent’ approach to setting policy in the face of repeated supply-side shocks.”
Meanwhile, the Fed is conducting its regular five-year review of its monetary policy framework, including evaluating its strategy, tools and communications methods to ensure they remain effective in achieving its dual mandate of maximum employment and price stability. The current review incorporates lessons from the pandemic and subsequent supply chain disruptions, as well as public feedback at events and conferences.