Trump is raising questions about independence of US monetary policy

By Promit Mukherjee and David Ljunggren

OTTAWA, Sept 23 (Reuters) – President Donald Trump‘s actions are raising questions about the continued independence of U.S. monetary policy and have also dented the safe haven appeal of the U.S. dollar, Bank of Canada Governor Tiff Macklem said on Tuesday.

The observations mark the first time Macklem has commented on Trump’s attempts to influence the Federal Reserve.

In the last few months, Trump has cranked up his demands for a rate cut, tried to remove one of the Fed’s governors and repeatedly insisted that chair Jerome Powell resign.

“President Trump’s attempts to influence the Federal Reserve are raising questions about the continued independence of U.S. monetary policy,” Macklem told the Saskatoon Chamber of Commerce in the western province of Saskatchewan.

Macklem said the new global uncertainty, triggered in part by tariffs, underscored the need for Canada to boost productivity and find new foreign markets.

“The question now is whether U.S. dominance in global financial flows will ebb as the United States pulls back from trade and runs large fiscal deficits. The recent performance of the U.S. dollar may be telling us something,” he said.

The greenback, he noted, was losing its appeal, falling almost 10% since Trump unleashed a barrage of tariffs globally in April. This, Macklem said, had called the dollar’s safe haven role into question.

“For now, the greenback remains dominant, and — without a clear alternative — I suspect it will remain the global reserve currency for the foreseeable future. But for many, its value as a hedge in times of stress has been dented,” he said.

He said the shifting trade equation with the U.S. had immense ramifications for Canada.

“We can’t afford to wait this out,” he said, adding that Canadian businesses as well as political and economic leaders would need to chart a new course.

“We should have been making these changes 15 years ago. But the next best time is now,” he said.

Canada has long suffered from anemic productivity which economists and businesses say is helping fuel inflation.

“We need to diversify our trade by growing our internal market and finding new overseas markets. And we need to improve our productivity and make ourselves more attractive to investors,” Macklem said.

Canada’s economy will work less efficiently, costs will go up and incomes will shrink due to increased trade friction with the U.S., he said, but noted monetary policy would not be able to soften these impacts.