Sep 22, 2026
Bank of Canada Governor Tiff Macklem delivered a blunt message in a speech to the Halifax Partnership, a public-private economic development organization: Two forces are now pulling the Canadian economy in opposite directions.
Macklem pointed out that trade talks with Washington have broken down again — putting pressure on supply and imposing restrictions on demand. At the same time, the Middle East conflict is dragging on, damaging refineries and pushing fuel prices well beyond predictable price expectations. The result is trade uncertainty weighing on demand, while higher energy prices keep inflation up.
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As Macklem pointed out: One creates downside risks to growth, while the other creates upside risks to inflation.
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While none of these observations are new, it was a rare public admission by the head of Canada’s central bank that the Bank’s usual playbook doesn’t have a clean answer, at this time.
For Canadians adjusting to tariffs, gas-pump sticker shock and a still-elevated cost of living, it’s a signal the recovery many were counting on this fall may be more fragile than it looked in the spring.
What changed in the last 6 months?
Six months ago, Macklem described Canada’s economy as being reshaped by structural forces — trade tension, artificial intelligence and an aging workforce.
Since then, there’s been real progress: Non-energy exports jumped 14.5% in the second quarter to their highest level since early 2025, business investment rose at an annualized 8.8%, and more than two-thirds of Canadian exporters say they now plan to expand into markets beyond the United States.
But two new developments are complicating this recovery. First, negotiations with the U.S. broke down again, extending steep tariffs to businesses beyond the auto, steel and aluminum sectors that were already hit hard. Second, the Middle East conflict has damaged global refining capacity, so gasoline and diesel prices have climbed even faster than crude oil itself. As Macklem pointed out, oil is now trading nearly US$40 higher than it should, given current economic conditions.
The result is that the Consumer Price Index (CPI) is running around 3%, well above the Bank’s 2% target — and largely because of fuel costs. And if oil prices hold near $100 a barrel, Macklem expects inflation to edge higher still in the months ahead.
“Trade uncertainty will weigh on demand,” he explained to the Halifax, NS audience. “Higher energy prices will keep inflation up. One creates downside risks to growth, while the other creates upside risks to inflation.”
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What this means for your wallet
But these economic pressures aren’t just a macroeconomic story — it hits household finances, as well.
If the new U.S. tariffs stay in place, Macklem said growth in the fourth quarter could be roughly halved, to below 1% — a slowdown that would likely show up first in hiring and hours worked, particularly in trade-exposed sectors and regions.
At the same time, households are paying more at the pump and, indirectly, more for anything trucked or shipped, as businesses pass along higher transportation costs.
Bond yields have also risen — partly because governments and businesses are borrowing more, and partly because markets expect other central banks to raise rates. That combination can push up the cost of new mortgages and corporate borrowing, even before the Bank of Canada moves its own rate.
“Even though inflation was around the 2% target for more than a year before the war drove up energy prices, the prices of most goods and services did not come down. That has left many feeling an affordability squeeze,” explained Macklem.
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In other words, even if inflation cools again, price levels likely aren’t going back down. That’s worth remembering when planning a household budget or a retirement drawdown.
Keep in mind, the BoC held its policy rate unchanged in the September rate announcement, but Macklem was clear it’s not a settled position. As these risks evolve, the BoC is prepared to adjust monetary policy as needed — which leaves both a hike and a cut plausible, depending on how trade talks and the Middle East conflict unfold over the next few months.
The tactical solution: How to position yourself
None of this calls for panic. Macklem and the BoC analysts have crunched the numbers and the data shows a Canadian economy that’s proven more adaptable than expected.
But Macklem’s most recent speech is a good moment for a strategic gut-check — an opportunity to assess where you are and what you need to do. Here are six considerations to help mitigate near-future risks:
- If you’re early in your career: Job-finding rates have already softened in occupations most exposed to AI, and trade-sensitive sectors may see slower hiring if tariffs bite. Shore up an emergency fund and avoid concentrating savings in a single trade-exposed employer or sector.
- If you’re mid-career with a mortgage: Rising bond yields are already filtering into borrowing costs. If your renewal is coming up in the next year, it’s worth running the numbers on locking in a rate now versus waiting for a Bank of Canada move that could go either way.
- If you’re in the sandwich generation or nearing retirement: Stress-test your budget against a cost of living that stays elevated even if the inflation rate itself comes down — the Bank’s own comments suggest price levels, not just the pace of increases, are the real affordability issue.
- If you’re retired or rely on fixed income: Rising yields are painful for bonds you already hold, but they’re an opportunity for new purchases. Consider laddering new fixed-income buys to capture today’s higher rates while limiting how much of your portfolio is exposed if yields keep climbing.
- If you’re an experienced or high-net-worth investor: Watch where Canadian exporters are redirecting their business — industrials, materials and manufacturers pivoting toward Europe and the Asia-Pacific region may be worth a closer look as that diversification plays out over the next two years.
- If you’re an ESG-minded investor: The current inflation spike is being driven substantially by oil, which creates a real tension between energy-sector exposure as an inflation hedge and sustainability mandates. It’s worth revisiting whether transition-focused or clean-energy names can serve the same defensive role in your portfolio.
What to watch next
The Bank of Canada will use a new forecasting tool called Prima for the first time in its October Monetary Policy Report, which should offer a clearer read on how persistent these pressures are expected to be. Until then, Macklem’s message is less “batten down the hatches” and more “know where you stand” — a strategic correction, not a five-alarm fire.
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Romana King, Senior Editor at Money.ca, also writes for various North American publications and the RKHomeowner blog. Her book, House Poor No More, is an Amazon bestseller and five-time award winner, including the 2022 New York CPA Society's Excellence in Financial Journalism (EFJ) Book Award.
