BoC governor says threats to Fed independence risk higher volatility for the loonie, inflation and rates
The head of the Bank of Canada is effectively telling markets that US politics around the Federal Reserve are now a Canadian risk.
The Canadian Press reported that Bank of Canada governor Tiff Macklem said this week that threats to the Fed’s independence are adding to “unusually high” uncertainty and could hit Canada particularly hard because of its tightly integrated financial markets with the United States.
He called the Fed “the biggest, most important central bank in the world, and we all need it to work well,” and warned that “a loss of independence of the Fed would affect us all,” especially Canada.
Macklem stressed that independence is not a procedural luxury, but a precondition for credible policy.
It “provides central banks with the space to take difficult decisions that benefit the economy, benefit the citizens of that country, over the medium term,” he said.
According to Reuters, He also backed Fed chair Jerome Powell personally, saying Powell is leading the Fed “based on evidence, based on facts” and adding, “I hope it stays that way. That’s going to be important for everyone.”
The Canadian Press reported that Tony Stillo, director of Canada economics at Oxford Economics, warned that if US policy rates become politically driven — for example, if the Fed “cut deeper than they should have” — Canada would feel it through the currency and imported inflation.
Stillo added that it would also affect the Bank of Canada’s own rate decisions.
He said that when US settings are “more in an appropriate manner,” it is easier for Canada to set an appropriate policy stance.
The warning comes as US President Donald Trump escalates his feud with the Fed and prepares to replace Powell.
As per CNBC, Trump said he will announce his pick for Fed chair on Friday, after a months-long process that narrowed an initial 11-candidate field down to four finalists:
- former Fed governor Kevin Warsh
- National Economic Council director Kevin Hassett
- current Fed governor Christopher Waller
- BlackRock fixed income chief investment officer Rick Rieder
Prediction markets have swung between those names, with platform Kalshi at one point putting Warsh as a strong favourite.
This succession battle sits on top of a broader clash over independence. Trump has repeatedly attacked Powell for not cutting interest rates fast enough.
Reuters also reported that the administration is seeking to remove Fed governor Lisa Cook, while the US Department of Justice has threatened Powell with criminal charges tied to past congressional testimony.
Powell has responded unusually forcefully for a Fed chair.
Earlier this month, he released a video calling the federal probe a “pretext” to destroy the Fed’s independence and warning of a world where “monetary policy will be directed by political pressure or intimidation,” according to CNN.
He later attended Supreme Court arguments in Cook’s case, describing it as “perhaps the most important legal case in the Fed’s 113-year history” and saying it would have been hard to explain if he had stayed away.
That confrontation has triggered institutional pushback.
All living former Fed chairs — Ben Bernanke, Janet Yellen and Alan Greenspan — and former US Treasury secretaries Henry Paulson and Robert Rubin signed a joint letter calling the probe “an unprecedented attempt to use prosecutorial attacks to undermine that independence,” warning that such tactics look like “how monetary policy is made in emerging markets with weak institutions.”
According to CNN, several US senators from both parties have also said the Fed must remain independent, even as they differ on Powell’s performance.
