THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, November 6, 2025
The Standing Senate Committee on Banking, Commerce and the Economy met this day at 10:30 a.m. [ET] to examine and report on matters relating to banking, commerce and the economy in general; and in camera to examine and report on Canada’s housing crisis and challenges currently facing Canadian home buyers, with a particular focus on government taxes, fees and levies, and to consider a draft report; and in camera to consider a draft agenda (future business).
Senator Clément Gignac (Chair) in the chair.
[Translation]
The Chair: Honourable senators, my name is Clément Gignac. I am a senator from Quebec and chair of the Standing Senate Committee on Banking, Commerce and the Economy.
I would like to welcome everyone with us today, as well as those watching online at sencanada.ca. Before proceeding any further, I would kindly ask my fellow committee members to introduce themselves.
[English]
Senator Varone: Toni Varone, Ontario.
Senator Loffreda: Tony Loffreda, Montreal, Quebec.
Senator Fridhandler: Daryl Fridhandler, Alberta.
[Translation]
Senator Henkel: Hello. I’m Danièle Henkel from Alma, Quebec.
Senator Ringuette: Pierrette Ringuette from New Brunswick.
[English]
Senator Yussuff: Hassan Yussuff, Ontario.
Senator McBean: Marnie McBean, Ontario.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Wallin: Pamela Wallin, Saskatchewan.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Martin: Yonah Martin, British Columbia.
[Translation]
The Chair: We are pleased to welcome Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers of the Bank of Canada in person.
Mr. Macklem, I invite you to deliver your opening statement. Your remarks will be followed by a question period. Mr. Macklem, you have the floor. Welcome.
Tiff Macklem, Governor, Bank of Canada: Thank you, Mr. Chair. It is a real pleasure to be back in the Senate.
[English]
I’m very pleased to be here with Senior Deputy Governor, Carolyn Rogers, to talk about our monetary policy decision and our economic outlook.
Last week we lowered the policy interest rate 25 basis points, bringing it to 2.25%. This was our second straight cut and reflects ongoing weakness in the economy and contained inflationary pressures. We also published our outlook for the Canadian economy.
We have four main messages. First, U.S. tariffs and trade uncertainty have weakened the Canadian economy. We expect very modest growth through the rest of the year with some pick upin 2026.
Second, while this weakness is restraining price increases, the trade conflict is also adding costs for many businesses, putting upward pressure on inflation. We expect these opposing forces to roughly offset, keeping inflation close to the 2% target.
Third, to support the economy through this period of adjustment, we have lowered our policy rate by 100 basis points since the start of the year.
Finally, the weakness we’re seeing in the Canadian economy is more than a cyclical downturn. It is also a structural transition.
U.S. trade restrictions have diminished Canada’s economic prospects. The structural damage caused by tariffs is reducing our productive capacity and adding costs. This limits the ability of monetary policy to boost demand while maintaining low inflation.
Let me now turn to economic conditions. While U.S. trade policy remains unpredictable, its impacts are becoming clearer.
[Translation]
Canada’s gross domestic product, or GDP, shrank by 1.6% in the second quarter. The mix of tariffs and uncertainty have resulted in a drop in both exports and business investment. American trade measures are having a profound impact on targeted sectors, including automotive, steel, aluminum and lumber. Household spending was resilient in the second quarter, with robust consumer spending and an increase in residential investment.
The labour market is tight. Gains in September followed two months of substantial losses. The unemployment rate remained at 7.1% in September, and wage growth slowed.
GDP growth is expected to pick up in the second half of the year, but remain weak at around 0.75% on average. It should then pick up in 2026, on a quarterly basis, thanks to a recovery in exports and investment. It should average approximately 1.5% by 2027. This assumes that the supply glut will be absorbed, but gradually.
Inflation measured by the consumer price index, or CPI, stood at 2.4% in September. This was slightly higher than the bank’s forecast. The bank’s favoured core inflation measures remained around 3%, but the upward trend has slowed. Analysis of a broader range of indicators seems to show that underlying inflation is approximately 2.5%. According to the bank, inflationary pressures are expected to ease in the coming months, and CPI inflation is expected to remain close to 2% over the projection period.
[English]
If the economy evolves roughly in line with this projection, the Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. We will be assessing incoming data carefully relative to the Bank of Canada’s outlook. If the outlook changes, we are prepared to respond.
For many months, we have been stressing that monetary policy cannot undo the damage caused by tariffs. Trade friction means our economy will work less efficiently, with higher costs and less income. Even as economic growth recovers, the entire path for the GDP is lower than it was before the swerve in U.S. trade policy.
Monetary policy can help the economy adjust as long as inflation is well controlled, but it cannot restore the economy to its pre-tariff path.
However, I will add that there are things this country can do to get on a higher path. We don’t need to accept a lower standard of living, and we shouldn’t.
Our focus at the Bank of Canada is on ensuring Canadians continue to have confidence in price stability through this period of global upheaval.
[Translation]
With that, we are ready for your questions.
The Chair: Thank you, governor.
[English]
Senator Varone: I had four questions, but after your opening remarks, I cancelled three of them. I am interested in this one item. What are the foreign monkey wrenches that can be thrown at Canada that will unsettle your policy outlook?
Mr. Macklem: Foreign ones?
Senator Varone: Yes.
Mr. Macklem: The biggest and most ever-present danger is what happens to the U.S. trade policy. You’ve seen on‑ and off‑again negotiations. The Canada-United States-Mexico Agreement, or CUSMA, is up for review next year. That process is now underway. If we were to see a material escalation of U.S. tariffs against Canada, that would have a very material impact on our outlook. It would be substantially weaker.
We published a scenario in July which gives a picture of what that could look like. In that scenario there was a recession in Canada.
Globally financial markets are very buoyant. By many metrics, equity prices look stretched. Corporate credit spreads are very narrow against a background of elevated uncertainty. We don’t give investment advice, and this isn’t a prediction, but that does raise the risk that if there were a change in sentiment about the payoff from AI, you could see a sharp downdraught in markets, corporate spreads widening and a sharp tightening in financial conditions. Again, that would negatively impact the outlook. Those are a couple of prominent ones.
Senator Varone: Chief Justice Roberts commented yesterday outside the Supreme Court of the United States about his take on tariffs, which was negative to Trump. Regardless of which way the Supreme Court decides, positive or negative, are you equipped to deal with that? I ask because whenever they release their decision, that’s going to be an immediate hammer that Canada’s going to be facing.
Mr. Macklem: We’ve been dealing now with on-again-off-again tariffs.
We have very steep tariffs on a number of sectors in Canada. We’ve been dealing with it. Regardless of the Supreme Court ruling, I expect we’re going to be dealing with it for some time.
Senator Marshall: Thank you, governor and deputy governor, for being here. I want to talk about quantitative easing. The weekly financial information that you provide shows a very slight increase in the Government of Canada bonds with a decrease in the indemnity agreements. Are you buying more bonds or is that just a connection between the indemnity agreements and the Government of Canada bonds?
Carolyn Rogers, Senior Deputy Governor, Bank of Canada: It’s the latter. It’s important to separate buying bonds from quantitative easing from normal management of our balance sheet. We got asked about it yesterday. You and I just talked about this. That is normal balancing of our asset sheet, matching assets and liabilities.
Senator Marshall: Would there be any plans now to go into quantitative easing? The reason I’m asking is the government is borrowing a lot of money. This year they’re going to borrow, they say, $138 billion, and they’re going to refinance $476 billion. Next year they’re going to borrow $149 billion, and they’re raising the debt ceiling again, which we expected. Are you bracing yourself for quantitative easing or that’s not on the horizon for you?
Mr. Macklem: I’ll take that. First of all, we’re not even thinking about quantitative easing; we’re nowhere near that. Second, when we do quantitative easing, it is not because of the government’s financial requirement. If we had to do quantitative easing — we’ve only done it once in the history; it was in the midst of a 100-year pandemic — it is guided solely by achieving our inflation target. At the moment, our policy rate is 2.25. We have considerable room to lower it if the situation deteriorated sharply.
Quantitative easing is a policy that you only use in very extreme circumstances. As I said, we’ve used it once. We did a thorough review of that and reaffirmed that it should only be used in extreme circumstances.
Senator Marshall: When you’re talking about the October monetary policy report, the last thing you say in the overview is: “Risks related to Canada’s trade relationship with the United States remain elevated.” But then you say, “The outlook could also be affected by risks that are not directly related to tariffs.” I thought that was quite an ominous statement and was wondering what was top of mind when you wrote that.
Mr. Macklem: We were trying to convey that we have this one very unusual risk, and that is U.S. trade policy. Whenever you do a forecast, there are always risks. We were trying to signal that the risk coming from U.S. trade is extremely unusual. There are a range of other risks. I talked about one of them. You could see a sharp tightening in global financial conditions. We highlight these later in the report.
As I emphasized in my opening remarks, Canada is going through a very difficult structural transition to a lot more friction at the Canada-U.S. border. The economy doesn’t do these things very often. We have not had a big increase in tariffs like this since the Great Depression. That adjustment could be more difficult; it could take longer than we’ve put in our projection.
On the positive side, U.S. tariffs, we could make some progress with the United States reducing the sectoral tariffs. If we were to get some renewed CUSMA, that would reduce much uncertainty. You would see some up sides. There are risks on both sides, but this big risk coming out of the U.S. is very much front and centre.
Senator Fridhandler: I’m going to get into some more day‑to-day banking questions rather than these weighty matters on monetary policy and interest level.
In early October, The Globe and Mail reported on a review conducted by the Ontario Securities Commission and the Canadian Investment Regulatory Organization on bank practices in their investment dealers. In this article, they said that the released report found mutual fund advisers face a high degree of pressure to meet sales targets, which can lead them to offer products or services that are not in a client’s best interest. The president of the Canadian Association of Retired Persons, or CARP, said:
What we heard from the OSC was sobering: their survey results show that a significant portion of bank clients continue to receive investment advice that is not in their best interest. The incentives at play appear to leave the investor in the back seat.
Significant is scary.
What is the Bank of Canada’s role in addressing this with their licensee banks?
Ms. Rogers: We are not the regulator of banks. That would be the Office of the Superintendent of Financial Institutions, or OSFI. I don’t think we have a direct role to play when it comes to banks’ relationships directly with their clients.
We provide some level of oversight and coordination with banks because they’re important in the payment system. That’s our key part of the regulatory regime, but that’s not an area where we have any particular expertise or a direct role.
Senator Fridhandler: In terms of the general licensing of the banks, does this weigh in the factor of how they are operating in the marketplace? Let me ask a follow-up, second question. Maybe I’ll be referred to OSFI on this one as well. I saw numerous letters, and I think I saw reported in the media, of the issuance of banks telling clients they’re no longer going to offer their services; they don’t fit in their risk profile. No reasons given. “You have 30 days; we’re closing your accounts. Move elsewhere.”
Again, these are licensees of the Bank of Canada. I hear you that you don’t regulate them, but you license them to operate, do you not?
Ms. Rogers: No, we don’t. No, we don’t license banks.
Mr. Macklem: We have a separation. We deal with monetary policy and payments. The Office of the Superintendent of Financial Institutions licenses, regulates, and supervises the banks.
Senator Fridhandler: Okay. I’ll move the questions over there. Thank you.
Senator Loffreda: Mr. Macklem and Ms. Rogers, welcome once again. Always a treat to have you here. My question is on inflation path and policy direction.
Governor, inflation has been easing but remains uneven across categories, with shelter and food costs continuing to pressure households. I have read your bank’s most recent projections, but if you want you can elaborate further on when you anticipate inflation returning sustainably to the 2% target. My main question is what indicators are you prioritizing in determining the timing and pace of future rate reductions?
Mr. Macklem: The Consumer Price Index, or CPI, inflation, which is what we actually target, has been fluctuating around 2%. It has been pretty close to 2% for more than a year now. In September, it did move up to 2.4%, but in general, CPI inflation has been tracking pretty close to 2%. We also have some measures that try to get to the underlying trend. We have two preferred measures of core. They’ve been around 3% now for a number of months. When we look at a broad range of indicators of underlying inflation — I can go through them if you like, but just to save time — they’re running around 2.5%. So 2.5%, 3%, that is concerning, and the concern is that CPI inflation could move up to core inflation, in which case it would be too high.
When we look at the details, though, earlier in the year we did see some upward momentum in core inflation. That upward momentum, if you look at three six-month measures of inflation, has come off. When we look at the categories, we do think that core inflation is going to move down gradually. Total Consumer Price Index inflation will stay close to 2%. There are always risks around that. There is no question that when we talk to companies they are facing new costs to reconfigure trade and to find new markets. That could boost inflation. On the other hand, the economy is weak, and so companies are finding it difficult to pass on those costs. They’re offering some discounts. Those two things will be roughly offsetting, and that’s what we’re going to be watching closely going forward.
Senator Loffreda: Thank you for that. How sensitive is the Bank’s forward path to potential wage price persistence or global supply disruptions, which you mentioned? How quickly would the Bank react if those pressures re-emerge? They can. You described a global trade scenario which could change overnight, and we know what’s happening with our neighbour to the south. What’s your take on those risks?
Mr. Macklem: In terms of wages, wage growth has come down considerably. The labour market is actually soft. We do not see wage pressures as a big cost driver for companies. However, as you suggested, yes, there could be a new trade shock, the situation could change. It’s a difficult question to answer: At what point is enough change enough to change our interest rate? We’ll have to make those judgments.
When I said that if the outlook changes we are prepared to respond. What I’m getting at there is that if there is some volatility in the data, if for one month or even a quarter, you see things going off the forecast, we’re going to be looking at whether that is just a temporary deviation from the forecast and we’re probably coming back to something like the forecast or whether the outlook is really changing. If the outlook is really changing, you can be assured that we will be thinking about how we are going to adjust and what we need to do to keep inflation on target and do what we can to support the economy.
Senator C. Deacon: Thank you, governor and senior deputy, for being with us. It’s always a pleasure have the opportunity to ask some questions.
Your Q3 monetary policy report showed some pretty flat business investment in oil and gas and moderate increases elsewhere in the economy. You based those projections on some information — I’m assuming — that was released by the previous government, in the spring or before this government, but I want to have an understanding of that, particularly in the context of new capital expenditures, whether or not the productivity super deduction might have an effect, inflationary or not, but certainly on the growth of business investment.
Mr. Macklem: Just to be clear, the projection that we published was published before the budget. So it doesn’t include the measures that were in the budget. There were some measures that were announced before the budget. If they were those, both federally and provincially are in. So, for example, a number of supports for specific sectors, increased access to EI — some of those things are in, but not the super deduction, for example.
The super deduction obviously lowers the cost for investment for businesses, so that should encourage more investment. Of course, there is more to an investment than tax. Fundamentally, you’ve got to have a good project and you’ve got to have an expectation of a profit. Accelerated deduction will increase that expectation of profit and maybe make that investment come sooner, but it’s not the only thing. The impact it is going to have is going to depend critically on the uptake in the private sector. Private businesses are the ones that are actually going to do these investments. Yes, it should encourage investment. How much it encourages is something to be determined.
Senator C. Deacon: So you haven’t seen a lot of changes yet, but you’re going to be monitoring it closely?
Mr. Macklem: Yes, we’re going to take this budget and go through it carefully. Our next projection is in January. We will incorporate these measures. Yes, we will have to make some judgments to do a forecast about what that uptake will be, for example.
Senator C. Deacon: Thank you. So the clarification is that it does include announced things right up until the monetary policy report?
Mr. Macklem: Yes, up to about a week before. There is a bit of production there.
Senator C. Deacon: With regard to the new regulatory roles beyond the Retail Payment Activities Act, or RPAA, and open banking stablecoin regulation, what will you be considering and has thought been given to ensuring that there is an overlapping regulation between those areas where you have innovative new entrants who could be feeling a huge regulatory burden, which wouldn’t help us with competition? I know, senior deputy, you’ve been speaking wonderfully about competition and its importance, but this is a critical factor to enabling that.
Ms. Rogers: Yes, that is one of the primary motivators for putting those roles all inside the Bank of Canada. We already had the RPAA role, and the thinking is that it will be a fairly large overlap between businesses that want to register under the Retail Payment Activities Act as well as potentially a stablecoin act and possibly open banking. This is all very new, but one of the conversations we will be having over the coming months is how we make sure we don’t end up having three different registration regimes for those businesses. That will require some thinking at a legislative level, but also at an operational level. We have built a technology platform, and so that should help us to be efficient for ourselves but also for businesses that want to register under multiple regimes.
Senator C. Deacon: This is refreshing news in our country because this has not been the way we have tended to operate in the past. I’m grateful to hear that. Thank you very much.
Senator Yussuff: Thank you, governors, for coming to talk to us again. I can’t say that I’m too excited about the gloomy news you’re bringing. Based on what you have said publicly, I have even more reason to be less optimistic that we’re going to get this right.
You said that lower growth means we will have lower income, and these are long-term problems for the economy. The challenge, of course, for working families is that they’re working harder than they ever have been, and they can’t seem to get ahead.
We passed Bill C-5 and said we will take down provincial barriers to make this country more efficient and hopefully stop some of the impediments we’ve complained about for over 100 years. How are we going to fix these problems that ordinary people are struggling with, despite the fact they’ve worked so hard and can’t seem to get ahead?
Mr. Macklem: We share the same concerns you do. Why do we have an affordability problem in this country? Why are so many people are having trouble affording things? It is because we’ve had a couple of decades of very weak productivity growth. If you don’t have productivity growth, you don’t have rising incomes. If you don’t have rising incomes, everything feels more expensive.
Obviously, the run-up in inflation we had in 2022 made things worse. We’ve got inflation back down, but we’re very conscious that the price level hasn’t come back down. Those prices are still higher. We’re not going to lower the overall price level. That would cause a big recession. That would be very damaging for the economy. Our job is to try to keep inflation close to 2%. I’m confident that we will do that.
The only way to make things more affordable is to increase our income. We need more productivity growth that will pay higher wages. You generate more income. Everything becomes more affordable.
We share your concern and I think it’s important that we’re straight with Canadians. This time last year, things were actually looking up. We did have a productivity problem, but at least the unemployment rate was coming down, consumption was picking up and investment was picking up. U.S. tariffs have changed all that. It is an added challenge. The message is, if we don’t do something about this as a country, we will be on a permanently lower standard of living, but there are things we can do, and we should do.
Senator Yussuff: Given that reality, we just had a budget talking about all kinds of things that we want to build and investments that the government is trying to make in a strategic way, but in addition to that, we have to have businesses take those opportunities and do something with them rather than simply another talk fest: “lower my taxes and magically the world will get better.” We’ve been through this before. Do you have any confidence that this time around people will get the message and we have to pick up the pace with what we’re dealing with? Canadians expect a better result from the prescription they’ve been getting over and over. It’s not their fault. How do we assure them that the things we’re proposing to do in this budget are ultimately going to make their lives and the country better?
Mr. Macklem: As you know, we do monetary policy. Elected governments do fiscal policy and tax policy.
Senator Yussuff: But we do want advice from time to time.
Mr. Macklem: Yes. I’m just saying, we’re not going to comment on specific measures. Our diagnosis of what’s been holding the economy back is very similar to what’s in the budget. There’s been a lack of business investment. We’ve got a relatively high hurdle of regulation. If we want to grow the economy more, we need more investment. We need to improve our productivity and our competitiveness.
I think there is a significant change in this budget. The government is very clearly reducing their operating expenditures, putting more of their spending toward investment, and that’s both public investment and efforts to catalyze private investment. The impact that’s going to have is going to depend very importantly on the execution. There’s a lot of work to do to actually put these things in place.
Secondly, as we’ve discussed, it’s going to depend importantly on the uptake of the private sector. The better the execution, the stronger the uptake, the more positive impact it will have.
[Translation]
Senator Henkel: Welcome, and thank you for being here.
I would like to ask you about venture capital. It is estimated that barely 5% of venture capital is allocated to businesses founded or run by women. The proposed federal budget emphasizes innovation, productivity and growth by injecting more than $1 billion to catalyze venture capital. Without structural changes to investment criteria and how funds are governed, this money is at risk of reproducing the same biases.
How can we ensure that these new funds do not perpetuate the biases that exist in the current system, but instead serve to open up venture capital to women and support their full entrepreneurial potential?
Mr. Macklem: That question would be better directed to the Minister of Finance. As I said, we agree that there is a lack of venture capital in the country. In this budget, the government has introduced a number of measures to stimulate it. Time will tell what effect they have. It is important to implement these policies intelligently in order to maximize their impact. The question of how to do that is better addressed to the Minister of Finance.
Senator Henkel: One of the Bank of Canada’s key missions is ensuring that payment services are secure. Considering the current geopolitical tensions and the fact that cyber-attacks are on the rise, what is the bank’s strategy for ensuring the continuity of essential payments, salaries, intergovernmental transfers and interbank payments in the event of a major incident? Do you believe that the Canadian system is currently as resilient as other major advanced economies?
Mr. Macklem: Yes. I have great confidence in our payment system. We have a good payment system in Canada, and the Bank of Canada’s new responsibilities will improve it. Next year, Payments Canada will launch its real-time payment system, which will create opportunities for very fast payments. We act as a supervisor of large payment systems. Our responsibility is to ensure that these systems are resilient. The Bank of Canada also has a responsibility to ensure that retail payments are secure. In addition, under the new legislation, we will have a responsibility to ensure that stable cryptocurrency is also a secure payment system.
We have a good system. Canadians have several options, and they will have even more in the near future. Things will start next year with the real-time payment system.
[English]
Senator Wallin: You’ve said on a couple of occasions, governor, most recently in Saskatoon at a speech that we in this country have waited too long to reduce our economic dependence on the Americans. You’ve also warned about a lower standard of living or a lowering standard of living.
On the budget, specifics aside, you’ve talked about it positively and that it was bold and that bold action is needed. For a lot of the measures, the lag time is long in terms of any impact they might have.
Is the message enough, or have you seen any specific indications that would make you optimistic about reversing the outflow of foreign capital or domestic capital that is going to tackle this and reduce that dependence?
Mr. Macklem: Let me focus on two points of optimism. First of all, as you highlighted, yes, I did bemoan the fact that we’ve waited too long to diversify our trade. Coming out of the global financial crisis in 2008-09, during that period, our financial system was actually working well. Banks did not fail here in Canada, but there was a financial calamity in the U.S. Banks failed, their economy contracted dramatically and that highlighted how dependent we were on the U.S. The recession in the U.S. had a big impact here in Canada. There was a lot of talk after 2008-09 about how we need to diversify our trade. I was out giving speeches on the topic, but not much happened. We recovered from the recession, business went back to normal.
I think this time, there is going to be a change. The relationship with the United States is fundamentally changed. I think businesses realize that they absolutely have to diversify their trade.
We actually have among the best trade access in the world. We have a trade agreement with the European Union and with Asia. We haven’t been taking full advantage of those. Certainly, what Ms. Rogers and I am seeing, Canadian businesses are going to Europe and Asia more than they ever have. They are looking for those new markets. You can actually see some uptick in our exports to non-U.S. When 75% of your trade is with the United States, it’s pretty hard to offset that, but you are seeing that pick up. I am hopeful that will continue because it is not just a risk management thing now; it is a business imperative.
Senator Wallin: I agree. We’re seeing some uptick, but we need the investment here. The Prime Minister talks about catalyzing, but you need to catalyze —
Mr. Macklem: Right, but if you’re going to invest, you’re going to invest with the expectation of a return. You need somebody to sell the stuff to. You have to develop those markets and be assured that you have a market for your product, and then you’re going to invest.
Senator Wallin: We have to be able to get it out of the ground here and get it to market.
Mr. Macklem: We have to get it out of the ground and to tidewater.
Senator Wallin: Just a quick point. I want to get back to Deputy Governor Rogers because she has the greatest quote of all time and this was more than a year ago: It’s time to break the glass, boys and girls. We’re in a crisis.
What’s your thinking? Are you trying to put the axe back in the container or what?
Ms. Rogers: I gave a follow-up speech on competition in March 2024 before President Trump took office. If it was an emergency then, it’s an emergency now.
I think you’ll continue to hear the bank talk about this topic. Other economists are talking about it. My colleague Nick Vincent will be giving a speech soon also on productivity, so that will tell you we don’t think we’ve quite solved the problem yet.
Senator Ringuette: Thank you. You seem very optimistic in regard to the risk and renewal of CUSMA in 2026. In a previous meeting, you said that you were looking at and analyzing models from all regions in Canada. I’m from New Brunswick, so I’m looking at what the situation is in Atlantic Canada. We’re not in auto, we’re not necessarily in aluminum or steel. We have some softwood issues.
For instance, right now, 92% of New Brunswick exports are to the U.S. I would venture to say that 98% are covered by the current CUSMA agreement. What will happen particularly to Atlantic Canada in regard to its economy and its cost of living if in 2026 CUSMA is not delivered or there are delays? Honestly, I’m beginning to cringe every time I hear the word “tariff” because New Brunswick is so vulnerable.
What is your analysis right now for Atlantic Canada?
Mr. Macklem: Just to be clear, we do considerable regional analysis. We gather information from companies and households across Canada. We have a regional office in Halifax that leads that for the whole Atlantic region.
We don’t have separate models for projecting the Atlantic economy or the Western economy or Central Canada. We have a model of the whole country.
In terms of your concern about CUSMA, I share every bit of that concern. As you pointed out, outside of the targeted sectors so far, if you’re compliant with CUSMA, you’re paying no tariffs. Canada’s average tariff rate is actually very low compared to most countries.
Having said that, we are by far the most integrated country with the U.S. Even though our average tariff rate is low, the impact of U.S. tariffs on Canada is much larger than most countries.
Uncertainty about CUSMA is already affecting the New Brunswick economy. Certainly, when we talk to businesses there, what we hear is they are reluctant to invest until they know what’s going to happen to CUSMA. It’s already having an impact, and the sooner that uncertainty — hopefully we can get a good deal — can be removed. If that happens, you will see a pick up in investment because people have been holding back.
There is a risk, and I don’t want to minimize it. The U.S. trade policy is extremely unpredictable. Even though it would be in both countries’ best interests to renew that agreement — it’s benefiting both countries — we can’t rule out that won’t happen. We have run scenarios, and yes, it’s bad news for the Canadian economy.
Senator Ringuette: So what is the current data from Atlantic Canada telling you? What is happening in the Atlantic region?
Mr. Macklem: Actually, there’s always some regional differences across the country, and obviously, the particularly targeted sectors are softwood lumber, lumber particularly severe in British Columbia, but also Ontario, Quebec and Eastern Canada as well. Steel is very much Ontario; cars, Ontario.
Having said that, the situation across the country is that uncertainty is holding back businesses across the country. It doesn’t really matter which region you are. When we talk to businesses, what we hear is that they are doing some investment. They’re doing basic maintenance. They’re running their business. They’re going to keep up production, but what they’re not doing, to a large degree, is embarking on big, new projects. They’re waiting for that to clear.
Similarly on hiring, what do we hear? The layoffs we’ve seen in the labour market have been concentrated in the sectors with steep tariffs, but in the rest of the economy, hiring is weak. Companies are not laying off people. They’re keeping their people and doing business, but they’re not hiring people to grow their company because there’s too much uncertainty. That’s true in Atlantic Canada. It’s true across the country.
Senator McBean: This committee is just moving into a drafting phase on a study of housing affordability, so just for your comments on that. How are the interest rates influencing the housing crisis in Canada? What advice would the bank offer to policy-makers seeking to restore housing affordability for homeowners and for home developers?
Ms. Rogers: The number one thing we need to do to improve housing affordability is to increase supply. To answer your question directly, interest rates have come down considerably from their high as we’ve got inflation back to target, but we had a housing affordability problem long before we had an increase in interest rates. We’ve had a mismatch in housing supply and demand I think probably — I’m from B.C., so it goes back, in my mind, at least, almost 20 years.
I think measures targeted at increasing supply and increasing supply in areas that are fit to what people want, we have an oversupply right now in certain markets in Toronto for sure of small condominiums. We need to be able to build houses more quickly and build houses that are a fit to what families want.
Senator McBean: We’ve heard lots of that. I’m just wondering more on the policy side with interest rates.
Ms. Rogers: The thing that I would add. What I wouldn’t want to see is more policies designed to simply increase the amount of debt people can take on to buy a house. For one thing, that won’t help bring prices down; it will actually keep prices up. In the long run, it saddles young families, first-time homebuyers, with too much debt. That’s not good for them. It’s not good for our economy. It can ultimately lead to financial stability issues, but it puts a lot of pressure on young families when we do have increases in other parts, such as increases in food prices and stuff. They really feel it when so much of their income is going toward a mortgage payment.
Really, I think the policy measures we would advocate for are those that help on the supply side and stay away from measures that simply increase the amount of debt that people take on.
Senator McBean: That leads nicely into a follow-up question.
How does the bank view the current level of household debt in Canada? What risk does it pose to the financial stability of Canadians?
Ms. Rogers: That’s one of the things that leads us to that recommendation.
Household debt levels have been coming down. That’s a good‑news story, but they’ve been elevated for a long time. What this does is that when there is a shock to the economy — when there’s an increase in interest rates or an economic slowdown and the risk of job loss — it makes the economy more vulnerable to financial stability issues.
The economy went through an enormous shock with the pandemic, with a very steep run-up in interest rates, and we were very concerned given the level of debt. The bank had been sounding the alarm on household debt levels for quite a few years, thinking that if there was a shock to the economy that necessitated an increase to interest rates, that was going to put a lot of pressure on households.
Now, there was most definitely a lot of pressure on households, but we got through it without any financial stability issues. We continue to watch that.
Senator McBean: Thank you.
[Translation]
Senator Dalphond: Welcome to our Senate committee.
[English]
In your publication entitled the Business Outlook Survey of the third quarter of this year — you referred to it in your answers — there’s uncertainty. Many of your talking points are about uncertainty, and this is holding back investment intentions. This also is despite a gradual improvement sentiment and a slight easing of perceived uncertainty.
The budget provides incentives to invest in new technologies and the acceleration of artificial intelligence. Do you think the market will follow that, or will you wait to understand what the big game will be? This is okay, as long as we have clients to purchase what we produce at a lower price with greater productivity. At the end of the day, can uncertainty be summarized as mainly what’s coming out next year, in 2026, with CUSMA?
Mr. Macklem: I would agree. Uncertainty is still going to hold back investment. As long as there’s uncertainty, businesses are going to have a hard time taking big investment decisions.
The budget is leaning into investment in a big way. That’s going to help. It will also be helpful, though, if that uncertainty gets reduced. I think we need to be realistic. I don’t think this U.S. administration is going to wake up and completely change their colours. They’ve demonstrated that they like a certain amount of unpredictability. Whether you’re the Bank of Canada, a parliamentarian or a business taking decisions, we all have to recognize that we’re in a different world. There’s more uncertainty. We still need to take interest rate decisions, and businesses still need to take investment decisions. You can’t wait forever. The world is going to be more uncertain, and the U.S. is not the only source of uncertainty.
As a business, businesses know their decisions much better than we do, but if you wait until a business opportunity is almost a sure thing, you can be sure that somebody else has already taken that business opportunity. You have to take some risk.
Hopefully, the budget encourages businesses, adds a bit of juice, provides a bit more certainty, and the tax provisions increase the returns, which encourages that boldness. We will see what the uptake is.
Senator Dalphond: I understand that you’re doing a quarterly outlook and you’re trying to get the pulse of businesses almost on a weekly basis, so you would be the first to tell us if something is moving at the beginning of January, I suppose.
Mr. Macklem: Yes, we survey businesses quarterly, certainly larger businesses. Those are actually in-person interviews. We also do a more rapid digital survey, an electronic survey, mostly of small- and medium-sized businesses. That will give us some sense before getting to our January outlook what the reaction to business is.
You’re looking at those surveys; you can see, yes, here’s what’s holding back investment. It’s going to be interesting to see what the impact of the budget is on those perceptions.
Senator Dalphond: Thank you.
Senator Martin: Thank you very much. My colleagues have asked some of the questions that I had, but just earlier to Senator McBean, you mentioned that household debt is going down. I’m looking at a report about household debt in Canada in 2025, and debt is growing rather than decreasing based on this report, and average debt also varies depending on geography. I think it’s important for those regional analyses.
In this report, they say that Canadian families are still struggling in spite of the lowering of the interest rate. The dollar just doesn’t stretch very far. Governor, you said that higher prices haven’t gone down. It’s very concerning to read these reports and the reality that we’re seeing across the country, that prices are not going down in spite of the lower interest rate.
Ms. Rogers: I think one difficulty for us in communicating is we deal very much in aggregates. We look at the economy as a whole. Senator Ringuette was asking about local economies.
In our Monetary Policy Report and most of our communication, we’re always talking about the economy as a whole, aggregate numbers, average numbers. They mask a lot of diversity across the country, households and income levels.
You’re absolutely right, Senator Martin, there are certainly households that are struggling more than others and for whom debt levels are still adding a lot of pressure. It’s important that we acknowledge that.
Senator Martin: Are there warning signs the bank monitors closely to anticipate a corrective adjustment in consumer spending or credit markets?
Ms. Rogers: Yes. In addition to our quarterly Monetary Policy Report, once a year, we put out the Financial Stability Report. We look across households and businesses, and we look for stress indicators. This is, I think, what Senator McBean was asking about. We look for how many households are more than 60 days behind on payments, for example. Those are the types of things that we look at to gauge whether households are feeling credit stressed or not, and that does affect consumption, certainly.
[Translation]
The Chair: Before moving on to the second round, I have a question.
Next year, in 2026, the monetary policy framework will be renewed. There is relatively broad consensus in Canada on the 2% target. However, there has been some debate — as you may recall, since you have been here a few times — about core inflation. I believe your colleague, Deputy Governor Mendes, gave a speech on this topic. Can you shed some light on this for us? Because there has been some controversy regarding the fact that core inflation was underestimated by the Bank of Canada.
Mr. Macklem: To be clear, our targets are for total CPI. We use core inflation measures to give us indications of persistence and inflation trends, because there is always “noise” in month-to-month measurements. In recent years, we have found that with more supply shocks and all kinds of different shocks in the economy, it is more difficult to eliminate the “noise” in order to see the trend.
This might be a better way of explaining it. Historically, certain sectors such as food and fuel are very volatile. A simple measure to counter core inflation would be to remove them. We know that all households need food and fuel. It’s not that these sectors aren’t important, but they tend to be volatile.
The pandemic, Russia’s attack on Ukraine and tariffs are impacting various sectors, and not just the food and fuel sectors. Disruptions are also being felt in supply chains. We are closely examining the situation to find the best way to measure core inflation. We are asking ourselves the following question: Is it better to have one, two or three measures of core inflation — we currently have two — or would it be better to simply publish the range and, each time, give our perspective on how to measure core inflation?
We will soon be publishing a listing of all these indicators, which we are reviewing and want to share with everyone. We are still considering the best way to proceed, and we will make the decision when we renew our monetary policy framework.
[English]
Senator Marshall: Governor, food inflation is an issue that keeps cropping up at home. I live in the most easterly part of Canada. Can you give us any insight or any trend lines as to where you think food inflation is going? Do you think it’s going to stabilize or get worse? Winter is coming. Can you give me some insight into that?
Ms. Rogers: Yes. The governor just mentioned when he was responding to the previous question that food is one of the parts of inflation that can be pretty volatile. There is a variety of factors that affect food, and some of them are global. For example, commodity prices and global transportation supply chains can move the price of food. When Russia invaded Ukraine, we saw a big run-up in food prices around the world. That’s the type of thing that affects food.
Trade policy in general can play a role. We saw the tariffs, in fact, playing a direct role on food prices earlier in the year. When we had counter tariffs, you saw some grocery stores actually labelling food. Since we import a lot of our food, the exchange rate can play a role. Then there are also weather events. All of those things are hard to predict. The last one, certainly, is very hard to predict. So it is difficult to say with any certainty that we expect food inflation to go in a certain direction.
In our current forecast, we expect some of the price pressure that has been on food to come off a bit. There is some sort of lag in the effects of exchange rates, transportation costs, fuel and that sort of thing. We expect some of that pressure to come down, but if a sudden supply shock affected food, it could change.
Senator Loffreda: A significant number of Canadian households will renew mortgages over the next 12 to 24 months at materially higher rates, and, as we know, uncertainty pushes up bond yields and keep long-term rates high despite your recent cuts. This creates financial stress for middle-class families and affects consumer confidence and demand. How is the Bank of Canada assessing the macroeconomic risks associated with the renewal shock? To what extent is this factor incorporated into your current policy stance? Does the Bank of Canada believe current lender flexibility and amortization relief mechanisms are sufficient to avoid broader drag on the economy?
Ms. Rogers: I’ll go in reverse order, starting with your last question.
You are right. About 30% of outstanding mortgages will renew over the next year, and in the lifecycle of mortgages, that is the mortgages that were taken out when interest rates were quite low. There is a portion of those households that will see a larger shock. We think it’s about half of the renewing mortgages because in any given year there are mortgages that are renewing at a five-year term and also shorter terms. We have seen borrowers go into shorter terms over the last couple of years. So there is a portion within that renewal group that will see quite a large jump in payments.
We did worry a lot, and in previous meetings we’ve talked about this question before. We have seen that there is a combination of wage increases, savings rates and flexibility by lenders, although those things have combined so far to alleviate some of that stress. In talking to banks, we’ve seen households preparing for this point for quite a while, being quite responsible, knowing their payment is going to increase, using their savings and benefiting from some increase in wages. We don’t expect to see a big jump in stress, but it is something we’ve watched all along and will definitely be watching. These are the last renewals that will come out of that period of very, very low interest rates.
Senator C. Deacon: Thank you again, governor and senior deputy. I want to drill deeper into stable coin regulation. The two major U.S. retailers are interested in issuing their own stable coin and have it develop in their own payment rail effectively by doing so. [Technical difficulties] is now in its seventieth year of being implemented. I can’t remember the exact number. I’m just wondering about how you’re looking at that. The other thing is about Canadian monetary sovereignty as an issue.
Mr. Macklem: I’ll start. Stable coins to this point have not been used very much for payments. They’ve been largely used to intermediate between different crypto assets. The GENIUS Act certainly has the potential in the U.S. to change that. The legislation is in place. Obviously, there is still quite a bit of work to do to take that from a legislation to a regulatory regime, and that work is underway.
It is very important that Canada has its own regime for stablecoins. The government in this budget has indicated their intention to do that. The Bank of Canada will be responsible for overseeing the implementation of that.
The legislation hasn’t been written. The regulations are a long way away. Broadly, what does that look like? The key about a stablecoin is that it is very important that it is, in fact, stable. That means that it is always convertible to money at par, because as soon as there are questions about whether that will happen, you will get a run on the stable coin, and the stable coin very rapidly becomes unstable. A key part of the legislative structure will be about the backing these stable coins need. The legislation needs to be written, but it’s going to be high-quality, short-term, highly liquid assets. As part of our regime, we are going to need to make sure that if you have a stable coin, we want to see that you actually have the backing in place in high-quality, liquid assets.
The other part is you want to make sure that there’s enough operational resilience so that this thing functions 24/7, and when you have the coin you can be confident that you use it. It will be our job to look at companies that ensure they have that operational resilience in both those respects.
It is somewhat similar to the oversight of retail payments. In retail payments we’re looking to see if the companies have operational resilience, if they’ve got backing. I think that’s why it makes sense to put this in the Bank of Canada.
Senator Yussuff: Governor, I’m looking at what’s in front of us and I see the job market deteriorating even more rapidly than what we’ve seen in the last couple of months. Some of those numbers are going to show up quicker based on what’s happening in auto, steel and aluminum because there’s no sense of people going back any time soon.
More importantly, recently in Ontario with a couple of the big facilities those workers — the supply chains that feed those facilities are also going to be impacted in a dramatic way.
The bank still has significant room in its policy rate to trim. Is there a reason why you’re not moving a little bit more aggressively to give Canadians some relief? We need to stimulate the economy and the budget will attempt to do some of that, but the budget is also going to drag because a lot of workers will be losing their job in the federal sector.
Where is the take-up going to come if you’re not moving a little more aggressively to provide some liquidity for people to say, okay, I could take that extra money and put it to better use, but I’m not going to do that until I know the rates are going to come down even further.
Mr. Macklem: Well, we are providing some stimulus to the Canadian economy at 2.25%, we think that is at the bottom end of our zone of neutral, so we do think it is providing some stimulus.
Your question is why not provide more? That comes down to the fact that our primary mandate is to keep inflation close to 2%. As I highlighted, this isn’t a normal cyclical slowdown, it’s partly a structural adjustment. Unfortunately, tariffs have destroyed some of our capacity in this country and they’re adding new costs so that is keeping inflation up, and Canadians really don’t like inflation.
A whole new generation of Canadians experienced significant inflation for the first time in 2022, and we’re still seeing the tail of that.
We don’t want that to happen again so we’ve got to find this balance. Our outlook is we don’t think the economy is going to continue contracting, we think it will grow, albeit weak growth. We think we’ve gotten about the right balance of where we are now, based on our outlook. If things are significantly worse than our outlook, we’re prepared to do more.
[Translation]
Senator Henkel: Everyone agrees that there is a great need to invest, reduce our dependence on foreign countries and strengthen our economic sovereignty. We also know that Canadians have plenty of savings that are underutilized. Why isn’t the Bank of Canada more actively promoting the idea of true patriotic financing to channel Canadians’ savings, for example, toward their own SMEs? In your opinion, what would be the most effective model for achieving this?
Mr. Macklem: I’m not sure I understood your question. You’d like —
Senator Henkel: I was talking about a way for Canadians, with savings that are being underutilized, to reinvest in the Canadian economy, and perhaps also to consider an idea that might come from you on how to properly manage this underutilized money.
Mr. Macklem: That’s really a decision that should come from the Department of Finance. We advise the government on debt strategy, but it’s really their strategy.
The good news is that we have a very efficient bidding system for Canadian bonds. It’s very strong. We sell them on the market in an auction system. It’s very efficient. Our interest rate on 10‑year bonds is about 3.25%. In the United States, it’s 4.25%. So, we’re well below that.
If the government wants to create opportunities for new investors, that’s always possible, but selling to everyone is much more expensive than selling on the markets. You need to manage all the relationships between people. It’s a question of determining the most effective way to limit debt.
[English]
Senator Dalphond: The question is about how the bank sees the spread between your lending rate — the bank rate — the mortgage rates and the commercial rates over time. Sometimes it’s very tight, it’s almost 1%, and sometimes it’s like 4%. How do you see it on the short and medium term?
Ms. Rogers: Well, we only set one rate. There are a lot of things that go into those rates. Primarily those rates always reflect where rates are but also where they’re going. I mean, we only set one rate but the margins are — the spreads are quite tight right now.
Senator Dalphond: Do you expect this is going to be an assumption that will remain?
Mr. Macklem: If we saw a situation where we thought our monetary policy was not getting transmitted through we would be concerned about that, but we’re not seeing that.
Senator Varone: Without diminishing the importance of the auto sector toward the Canadian GDP, I mean, my numbers tell me that it’s about $55 billion that it adds to Canada’s GDP with 450,000 jobs pretty much at risk, but all the risk is external to Canada in terms of the impact, whether it be CUSMA, whether it be tariffs.
And then you juxtapose that to the Canadian homebuilding industry that adds about $140 billion to the GDP with 1.2 million jobs at risk and all its issues are made in Canada.
Are we spending enough time, in terms of the importance of bolstering the homebuilding sector, which is in Armageddon right now, versus all the time we’re spending worrying about tariffs?
Mr. Macklem: I’m not sure we have a very good answer for that. What we see in the housing market is some strengthening in starts and some strengthening in resales. It does depend — as the Senior Deputy Governor highlighted, we don’t have one housing market in Canada we’ve got many local markets. And certainly Toronto is in a very different situation than a lot of the rest of the country.
But household spending, housing, we have seen it pick up a bit. We expect modest growth.
To get back to the questions about the need for more housing, the population growth has come down a lot. So the number of new houses we are going to need isn’t growing as rapidly, but there is a stock, we’ve got a long way to catch up. So we’re going to need a long period of pretty strong housing construction to close that gap.
The government has put in a number of measures. I would highlight that a lot of the decisions that matter the most are at the municipal level, they’re not at the federal level. The federal government has certainly wished to try to encourage municipalities, but a lot of it is going to come down to municipalities.
The final thing is if we want to build more houses quickly, we do have to improve productivity in the housing sector. If you look at the time to completion of housing, it looks like a straight upward line. We’ve got to bend that curve back down. I’ve talked to a lot of home builders about, for example, these new more modular homes. Yes, it’s pretty clear there are mixed reactions across the industry. Some people are quite hesitant. There are some initiatives in this direction in this country. Whether it’s that or other initiatives, if we want to close that gap, we have to build houses more efficiently.
Senator Wallin: Just to be interested in a comment because you’ve talked about our vulnerability vis-à-vis the United States and the uncertainty. There seems to be a renewed embrace of China as both a trading partner and a “strategic” partner. What concerns do you have about that, if any, in terms of our vulnerability or using that as a new option?
Mr. Macklem: Well, I mean, we’re not really here to talk about geopolitical tensions. I mean, from an economic point of view, China’s the second-biggest economy in the world. It’s an important buyer particularly of natural resources, particularly agriculture.
Senator Wallin: Except canola.
Mr. Macklem: I was in Saskatchewan, certainly Chinese tariffs on canola are a huge issue. Look, if we can improve our trade relationship with China, that will be a good thing for the Canadian economy.
Senator McBean: You mentioned in your opening remarks how the Canadian financial environment is experiencing structural challenges. You also mentioned in response to Senator Varone that one of the risks is the AI bubble that we’re in right now.
I’m wondering, to be more specific on that risk, to what extent is the bank concerned that elevated equity valuations in AI‑related stocks could pose financial stability risks to Canada’s broader economy? If we go back since the 2000s at all the different times that the tech environment has crashed and the severe impacts it’s had on the broader economy, I’m wondering if our banks and businesses have enough resilience built into them.
Mr. Macklem: Well, I don’t know if it’s good news or bad news, but we don’t have any big, huge AI companies in this country. We don’t have the global tech champions. If there was a sharp correction in AI, it would affect large American companies more than our companies. We have some very successful companies, but they’re not as big a part of the Canadian economy. That’s actually probably part of our problem. If there was a big correction, it would certainly slow the economy. Whether it would really impair the financial system is a more open question.
When the dot-com bubble burst, in the U.S. it caused a shallow recession, but it didn’t cause a huge financial stability problem because these were mostly equity investors. People lost money, but banks were well capitalized; they weren’t bank loans, they were equity. Banks were able to continue functioning, making loans so that we got out of that pretty quickly.
Contrast that to the subprime mortgage prices in 2008-09, when the housing market slowed sharply in the U.S., a lot of those mortgages turned out to be worth a lot less than their par value. That did impair the U.S. banks, some of them failed. That caused a much worse recession. There was a long period of de‑leveraging, so it took a long time to get out of that.
What happens with AI is really going to depend on is it equity losses that have a — I’m not trying to minimize the impact on the economy, but it wouldn’t be as big or as long-lasting as if it gets into the core of the financial system.
Senator McBean: But is it possible that we run into a bit of a perfect storm here where if we have increased job losses, we also have lots of mortgage defaults so the banks are having to fight with the resiliency on that effort? And at the same time, even if it’s the American economy, the Nasdaq kind of falls through the floor. Can we handle two big defaulting sectors at the same time?
Ms. Rogers: As the governor said, a sudden change in confidence in the A.I. sector or if values change sharply, it’s not likely to feed through the banking sector.
The other risk you described where a spike in unemployment would cause a higher rate of default on mortgages, that would show up in the banking sector and that is a stress that we test against regularly. So I can tell you on that stress, we are not worried about bank stability. We would definitely be focused on how it is affecting households. The banks have plenty of capital to withstand that stress. As the governor said, we don’t see the risk of an AI correction really showing up in bank stress.
The Chair: Last question as the chair. In fact, Prime Minister Carney asked the departments to cut the workforce by 10%. I know you are different from politicians, which is a good thing that monetary policy is independent. But is it something you contemplate and consider, the possibility to reduce the workforce, and what that means in terms of the number of jobs?
Ms. Rogers: Yes, the bank received a letter from the Department of Finance, as most Crown corporations and agencies did, several months back asking us to comply with the spirit of the intent to reduce the public sector workforce. We put a plan in place and we will be reducing our overall expenses by 15%, and part of that will be a reduction in the workforce. It equates to about around 230 jobs, and that reduction will happen between now and early next year, June at the latest.
Mr. Macklem: The bank is about 2,300, so it’s about 10%.
[Translation]
The Chair: Thank you, Mr. Macklem and Ms. Rogers. It is always a pleasure to have you here. You have a very busy schedule. The Standing Senate Committee on Banking, Commerce and the Economy was very pleased to have the opportunity to hear from you.
We will now temporarily suspend the meeting in order to continue in camera.
(The committee continued in camera.)