The Bank of Canada says recent trade agreements reached between the United States and other countries suggest that U.S. tariffs are here to stay and the federal bank is watching the impact closely.

Governor Tiff Macklem says the Bank of Canada is holding the key interest rate at 2.75 per cent but says the door remains open to possible interest rate reductions in future.

He says the impact of U.S. tariffs on the global economy are less severe than anticipated, but what happens next remains to be seen.

He says the tariffs in agreements reached to-date, suggest that the United States is not returning to an open trade policy. “So far, the global economic consequences of U.S. trade policy have been less severe than feared. U.S. tariffs have disrupted trade in major economies, and this is slowing global growth, but less than many anticipated.”

Macklem says Canada showed robust growth in the first quarter of 2025, mostly because firms were rushing to get ahead of tariffs.

“In the second quarter, the economy looks to have contracted as exports to the United States have fallen sharply, both as payback for the pull forward and because tariffs are dampening U.S. demand for our goods.”