Will he or won’t he? Will that mean they will or they won’t?
Those are the questions economists are mulling over this week as they await the next interest rate decision from the Bank of Canada. They wonder: will President Trump impose tariffs on Canada or won’t he? And, then in turn, will be the Central Bank lower, raise or hold interest rates.
The current betting is that rates will fall – a quarter point. But it will come with a warning that higher rates are not off the table…because of tariffs.
Here are some scenarios to consider and they can be confusing. Tariffs are imposed with a future deadline. That will trigger hoarding – people and businesses buying supplies ahead of the tariff. Here’s the irony – that will trigger an economic growth spurt.
But then activity will drop off as the excess inventory is consumed which should mean lower interest rates. But tariffs mean higher prices – particularly if we impose retaliatory tariffs which will mean higher prices in Canada, compounded by a falling dollar. Higher prices tend to mean higher inflation and interest rates.
