Inflation risks loom in 2026, and central banks have yet to agree on how to respond. Global Finance reveals the 2025 North American central bankers’ report cards.
Canada | fight Macklem: B+
The once predictable Bank of Canada (BoC) monetary policy stance has become less certain over the past 12 months. Governor Tiff Macklem led an aggressive rate-cutting cycle, lowering the overnight rate seven consecutive times from April 2024 to March 2025, taking it down to 2.75%. This pattern was paused in April and June, with policy announcements indicating that the country had reached a “neutral” interest rate level. By September, policy had changed, and the Bank of Canada cut interest rates by 25 basis points to 2.5%.
While the bank continues to emphasize keeping core inflation above its 2% target, many analysts see the economic outlook as having weakened significantly. The Canadian economy, which relies heavily on trade with the United States, is already feeling the pressure from the tariffs imposed by the Trump administration, whether implemented or threatened. Employment data is starting to show signs of deterioration and 2025 GDP growth is expected to fall below 2%.
“Macklem has given us a lot of mixed messages,” says Stephen Brown, deputy chief economist for North America at Capital Economics. “They maintain that core inflation has remained above target in recent months, but at the same time they seem unwilling to believe that tariffs are a one-time price change and that a weak economy will push inflation down again. They appear to be afraid of a repeat of the inflationary spike we saw during the pandemic. But the situation is different now; the Canadian economy is weak, while there has been a broad global recovery during the pandemic and US stimulus.” Huge inflation caused high inflation. Self-sufficient.”
Canada’s unemployment rate rose to 7% in May, the third straight monthly increase and the highest level since September 2016, excluding the pandemic years.
“My criticism is that they have become too reactive to the incoming data, rather than showing confidence in their judgment of broader economic trends,” Brown adds.
What makes matters more complicated is the escalation of trade tensions. The United States imposed a 25% tariff on cars assembled in Canada, along with a 10% tariff on Canadian energy resources and critical minerals. In response, Ottawa imposed 25% tariffs on a range of US products, including steel, aluminum and various consumer goods. Ongoing negotiations continue to create uncertainty about trade policy and economic forecasts.
United States | Jerome Hayden Powell: A+
At the beginning of July, during the European Central Bank Forum in Sintra, Portugal, Federal Reserve Chairman Jerome Powell received a round of applause from his peers after responding to personal attacks from President Donald Trump by saying he was focused on doing his job.
Since Trump’s re-election last November, Powell has faced repeated public criticism over monetary policy that the president considers too tight. Trump, who originally appointed Powell, even threatened to fire him before the end of his term in May 2026.
“I’m very focused on just doing my job,” Powell said in July. “The important things are to use our tools to achieve the goals that Congress gave us: maximum employment, price stability, and financial stability.
That’s what we’re 100% focused on.” Over the past year, the Fed has shifted from raising interest rates to keeping them steady, and more recently to lowering them. In September last year, it made a sharp shift with a 50 basis point cut, signaling a new trend. After keeping the overnight federal funds rate at 4.25% to 4.5% for several months, it cut the benchmark interest rate to 4% to 4.25% in September, with further cuts expected this year.
“They’re getting a lot of pushback from the Trump administration, which says the Fed is fighting the last war,” says Stephen Brown, deputy chief economist for North America at Capital Economics. “But it’s not fair. Inflation is not back to 2% and the economy is still strong. Interest rates are clearly not overly restrictive. I think Powell is playing well because he faces what could be a difficult 10 months before his term ends.”
Brown says the Fed is currently in a “wait-and-see” mode, closely monitoring economic data and the effects of Trump’s new tariffs before taking further steps: a stance that has drawn the president’s ire.
Investors see another potential rate cut, perhaps by the end of 2025. “There is a risk that they will fall behind the curve, but there is a lot of uncertainty about trade policy,” Brown warns. “These tariffs are unprecedented in the modern era, and even if we knew exactly what they would be, we wouldn’t know how they would impact the economy.” And the Fed seems willing to risk falling behind a little bit. off the reduction curve if that helps avoid falling too far behind if inflation rises again.”
The hawkish tone adopted by the Powell-led Fed in response to tariff uncertainty is appropriate given it has largely guaranteed a soft landing for the economy, says Conor Beckey, head of Latin America country risk at BMI. He adds that the data generally continued to support the central bank’s cautious approach.
“The Fed’s willingness to hold its ground is commendable, with Powell having no choice but to shift from a ‘data-driven’ to a ‘conditional’ approach to setting policy in the face of recurring supply-side shocks,” Beckey says.
At the same time, the Fed conducts a regular five-year review of its monetary policy framework, including an assessment of its strategy, tools, and communication methods to ensure they remain effective in achieving its dual mission of maximum employment and price stability. The current review incorporates lessons learned from the pandemic and subsequent supply chain disruptions and includes public feedback through events and conferences.
