He pointed to Canada’s experience, where inflation averaged close to 2% for 25 years before the pandemic. Even during the 2022 inflation surge, which reached a 40-year high of 8.1%, the credibility of the 2% target helped anchor long-term expectations.
“The credibility of our 2% target was the foundation for this success,” he said. The governor added that the Bank’s forceful interest rate hikes brought inflation back to target in the summer of 2024 without a recession or major job losses.
Bank of Canada’s approach in a changing world
Macklem acknowledged that the global economy now faces more structural headwinds, including geopolitical tensions, new US tariffs, and more frequent climate events. These factors, he explained, could lead to more frequent supply shocks and greater variability in inflation. He stressed that while monetary policy cannot resolve these underlying issues, the Bank of Canada is adapting its approach by using non-traditional data and investing in new economic models that can better capture the effects of sectoral disruptions.
He also discussed managing uncertainty by placing less weight on single forecasts and relying more on scenarios to evaluate a range of potential outcomes. Macklem cited the Bank’s use of scenarios to navigate unpredictable US trade policy in recent interest rate decisions.
As the Bank of Canada prepares for its next framework renewal in 2026, Macklem said it is considering three key questions: how to respond to supply shocks, the best way to measure core inflation, and how housing affordability interacts with monetary policy. However, he was clear that one element will not be revisited.